defence materiel organisation · ... explanatory tables and budgeted financial statements . ... and...

DEFENCE MATERIEL ORGANISATION

AGENCY RESOURCES AND PLANNED

PERFORMANCE

Section 1: Agency overview and resources 1.1 Strategic direction

1.2 Agency Resource Statement 1.2.1 People

1.3 Budget Measures

1.4 Transition from Outcomes and Outputs to Outcomes and Programs

1.5 Programs for which Treasury is appropriated under the New Federal Financial Relations Framework

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 business of the DMO is to equip and sustain the ADF. The DMO makes a major contribution to both the preparedness of today’s ADF and the development of the future force.

In 2009-10, a key area of focus for the DMO will be implementing the Government's decisions in relation to the 2008 Defence Procurement and Sustainment Review (the Mortimer Review) and the White Paper and the associated Strategic Reform Program.

In its response to the Mortimer Review, the Government agreed to a range of recommendations to improve the way Defence develops, acquires and sustains military capability, including improvements to continue the process of making the DMO more business-like in supporting its Defence customer.

The Strategic Reform Program announced in the Defence White Paper is focused on identifying efficiencies and improving productivity. To fund the capability needs of the ADF over the next decade, the Government has committed to the financial plan that is outlined on page 15. A significant proportion of this new capability investment will be funded by efficiencies and productivity enhancements. As part of the Strategic Reform Program, the DMO will scrutinise all major fleets of military equipment in detail to identify possible efficiencies over the next five years under the Smart Maintenance initiative.

The key priorities in 2009-10 are to:

• deliver acquisition and sustainment to effectively

- manage capital acquisition projects in accordance with Materiel Acquisition Agreements (MAAs)

- manage existing capability in accordance with Materiel Sustainment Agreements (MSAs)

• work with defence industry to reduce costs in 2009-10 by increasing capacity, productivity and output performance to meet the ADF’s needs

• work with key customers (the Army, Navy and Air Force) to reduce the cost of ownership of major defence fleets and systems

• reform business processes to reduce bureaucracy and make the DMO more business-like, accountable and outcome driven

• recruit, develop and sustain the workforce the DMO requires.

As in previous years, the requirements of deploying ADF units will continue to be given the highest priority. The DMO is strongly focused on continuing to improve its acquisition and sustainment core business, ensuring the effective implementation of enhancements to its business processes and systems, and continuing reform.

Our plans and forecast budgets for the purchase of equipment assets (acquisition) and the maintenance and support of those assets throughout their in-service life (sustainment) are set out in the remainder of this budget statement.

The DMO is currently managing over 210 major acquisition projects and more than 150 minor projects. It also provides sustainment management services for over 100 ‘fleets’ of military equipment. To meet these demands, the DMO has many of its own staff, together with contracted industry suppliers, located near or with the operating ADF units. DMO personnel are currently located in over 40 locations across Australia and overseas including the United States, United Kingdom, France, Spain and New Zealand.

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Defence Portfolio Budget Statements 2009-10

The DMO and Australian defence industry have a significant and ongoing role to play in delivering new equipment on time, on budget and to specification underlined by capability effect, quality and safety. In 2009-10, the DMO is budgeted to spend in excess of $11.85b, of which an estimated 57 per cent is expected to be spent in Australia.

The Chief Executive Officer of the DMO is directly accountable to the Minister for Defence for the DMO’s performance under a directive from the Minister for Defence, which provides the strategic direction for the organisation. The directive also requires the CEO DMO to acknowledge the joint responsibilities of the Secretary of Defence and the Chief of the Defence Force under section 9A of the Defence Act 1903, and recognise the continuing roles, responsibilities and authority of the Secretary as defined by the Public Service Act 1999.

SIX THEMES FOR REFORM

The guiding themes that remain the foundation of the DMO’s ongoing reform strategy are:

• Professionalise—maintain and expand individual competencies

• Reprioritise—to concentrate on the important

• Standardise—our business practices for clear definitions of outcomes

• Benchmark—ourselves against domestic and international best practice

• Improve industry relationships and industry performance—encourage open and honest dialogue and reward good performance

• Lead reform—and embrace change.

MAJOR REFORMS

The Mortimer Review, commissioned by the Government in May 2008 and undertaken by prominent businessman Mr David Mortimer AO, considered progress in implementing the 2003 Defence Procurement Review and further potential reforms. The report of the review, entitled Going to the Next Level, was tabled in Parliament on 23 September 2008 by the Minister for Defence.

Of the 46 recommendations made by Mr Mortimer, the Government has agreed to implement 42 recommendations in full and partially implement a further three.

The Government’s response to the review reaffirmed its commitment to ensuring greater transparency and accountability throughout Defence’s procurement processes and practices, in order to deliver better results for the ADF and the Australian taxpayer.

The Government’s response also highlights the scale of change needed to improve procurement and is underpinned by four key principles:

1. that Defence must become more accountable to the Government and more transparent in managing the billions of dollars invested in building military capabilities

2. that the DMO must strengthen its capacity to give the Government independent advice on the cost, risk, schedule and acquisition strategies for major capital equipment

3. that the DMO needs a stronger business-like culture to deliver projects on time, on budget and to Defence’s requirements

4. that the already strong relationship between Defence and the DMO must be further strengthened. The key priority is meeting Defence’s military capability needs and, by achieving that goal, keeping Australia secure.

The implementation of the Mortimer Review recommendations approved by the Government will involve action both by the Defence Groups and Services and the DMO. Implementation of those recommendations approved by the Government that relate to the DMO has already commenced. For example, recruitment action is underway to appoint a new suitably qualified General Manager Commercial. Direct appropriation of service fee funding is included in this budget, and project and

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product charters are being developed to clarify the authority and accountability of key DMO managers. The DMO will develop a full implementation plan for those recommendations relating to it and action those as a priority in 2009-10. A copy of the Mortimer Review can be found at www.defence.gov.au/publications/mortimerreview.pdf and a copy of the Government response at www.defence.gov.au/publications/Mortimer_Review_Response.pdf.

As part of the Strategic Reform Program announced in the White Paper, the Government has directed a targeted program of reforms to reduce the cost of supporting Defence’s major fleets of military equipment while maintaining stringent safety standards. In the current economic climate, the ability of the DMO to meet both its effectiveness and efficiency goals is paramount. While cost effectiveness must be maintained, efficiency is critical to ensure that the budget is best used to deliver essential services to the ADF.

Smart Maintenance reforms will focus on becoming more productive and eliminating waste in the maintenance and supply-chain processes, and reducing inventory costs through smarter procurement processes and reducing the size of inventory holdings. Savings delivered by Smart Maintenance are expected to grow progressively over the decade and have been earmarked for reinvestment in current and future capability.

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Chief Executive Officer Dr S Gumley

General Manager Commercial

Vacant ***

General Manager Programs Mr W King

***

General Manager Systems

Mr K Gillis ***

Chief Finance Officer DMO

Mr S Wearn **

Special Counsel to CEO DMO

Mr H Dunstall **

Maritime Systems RADM B Robinson

**

Land Systems Mr C Sharp

**

Human Resources and Corporate Services

Mr P Lambert **

New Air Combat Capability

AVM J Harvey **

Airborne Early Warning and Control

AVM C Deeble **

Aerospace Systems AVM C Thorne

**

Electronic Systems Ms S McKinnie

**

Helicopter Systems MAJGEN T Fraser

**

Explosive Ordnance Mr A Klenthis

**

Industry Division DMO

Mr K Clarke **

Sustainment and Project Performance

Vacant **

Defence Export Unit Mr T Whelan

*

Amphibious Ships Mr P Brown

*

Major Programs Systems

Figure 4: The DMO organisational structure at 11 May 2009

Defence P

ortfolio Budget S

tatements 2009-10

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1.2 Agency resource statement

RESOURCING FOR 2009-10

The total net resourcing available to the DMO is $12,614.8m. The bulk of the total resourcing is provided by Defence as a cash payment of $10,765.4m in 2009-10. The remaining amount constitutes a special account opening balance of $927.3m, appropriation receipts of $851.1m, and non-appropriation receipts of $71.0m.

The DMO’s total income in 2009-10 is $11,850.7m. This includes funds for procurement of capital equipment ($6,271.9m), sustainment of existing capability ($5,474.1m) and provision of industry and procurement policy advice and management services ($104.7m).

Up until 2008-09, the service fee to cover workforce and operating costs was received from Defence. From 2009-10 onwards this will be directly appropriated to the DMO by the Government.

The total income in 2009-10 represents an increase of $2,460.7m compared with the estimated income for 2008-09.

In comparison to the 2009-10 estimates contained in the Portfolio Additional Estimates Statements 2008-09, there has been a decrease in the DMO’s income of $325.7m primarily as a result of:

• the reprogramming of the Approved Major Capital Investment Program to future years (-$321.9m)

• other changes to acquisition budget, largely the rescheduling of unapproved major projects (-$427.5m)

• increased funding for operations ($408.3m).

AGENCY RESOURCE STATEMENT

Table 59 shows the total resources from all sources. The table summarises how resources will be applied by outcome and by administered and departmental classification.

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Table 59: The DMO resource statement budget estimates for 2009-10 as at Budget May 2009

Estimate of prior

year amounts available

in 2009-10

+ Proposed at Budget

2009-10 $'000

=

Total estimate 2009-10

$'000

Actual available

appropriation 2008-09

$'000

Ordinary Annual Services[1]

Departmental appropriation Departmental appropriation

S.31 Relevant agency receipts[2]

Total ordinary annual services A

$'000

---

851,082 -

851,082

851,082 -

851,082

94,960 -

94,960

Total other services B - - - -

Total Available Annual Appropriations - 851,082 851,082 94,960

Total special appropriations C - - - -

Total appropriations excluding Special Accounts - 851,082 851,082 94,960

Special Accounts Opening balance[3]

Appropriation receipts[4]

Appropriation receipts - other agencies[5]

Non-appropriation receipts to Special Accounts Total Special Account D

927,341 -

-

-927,341

-851,082

10,765,383

70,965 11,687,430

927,341 851,082

10,765,383

70,965 12,614,771

987,862 94,960

9,040,694

92,001 10,215,517

Total resourcing (A+B+C+D) 927,341 12,538,512 13,465,853 10,310,477

Less appropriations drawn from annual or special appropriations above and credited to special accounts - 851,082 851,082 94,960 Total net resourcing for the DMO 927,341 11,687,430 12,614,771 10,215,517

Notes 1. All figures are GST exclusive. 2. s31 Relevant Agency receipts - estimate. 3. Estimated opening balance for special accounts. For further information on special accounts see Table 71. 4. Appropriation Bill (No.1) 2009-10. 5. Appropriation receipts from Defence annual and special appropriations for 2009-10 included above.

Table 60: Third Party Payments from and on behalf of other agencies

2009-10 2008-09 $'000 $'000

Payments made to other agencies for the provision of services[1] (disclosed above) 345,937 350,139

Note 1. Primarily 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.

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1.2.1 PEOPLE

The DMO’s professional and experienced workforce has been steadily developed since the DMO was established as a prescribed agency in 2005. The DMO’s primary people goals for 2009-10 are to:

• further define workforce requirements based on anticipated workload

• ensure future workforce needs are met

• continue with innovative initiatives to enhance workforce capabilities

• increase professionalisation of the workforce

• maintain and build upon the DMO’s reputation as a preferred employer.

These goals will be pursued in the context of the reform of the Defence workforce announced in the White Paper, which involves civilianisation of military support positions, conversion of contractors to Australian Public Servants, and creating a leaner, more effective business model.

The Portfolio Additional Estimates Statements 2008-09 advised a total workforce allocation of 7,658. This has since increased by 66 to 7,724 as a result of the Government tasking the DMO with new project and sustainment activities.

Table 61: Planned workforce statement[1]

2008-09 2009-10 2010-11 2011-12 2012-13 Navy 353 367 374 381 381 Army 466 500 525 538 538 Air Force 940 928 978 963 963 1. Sub Total Permanent Force 1,759 1,795 1,877 1,882 1,882 Navy 160 160 160 160 160 Army 105 105 105 105 105 Air Force 37 50 50 50 50 2. Sub Total Reserve Force 302 315 315 315 315 3. APS 5,496 5,764 5,858 5,951 6,116 4. PSP 167 164 160 157 157 5. Total Workforce Strength (1+2+3+4) 7,724 8,038 8,210 8,305 8,470

Note 1. This table includes allowances for the Defence Strategic Reform Program, new acquisition and sustainment activities.

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Table 62: Breakdown of personnel numbers by service and rank including APS and PSPs

2008-09 2009-10 Projected Budget

Result Estimate

NAVY Star Ranked Officers[1] 7 8 Senior Officers[2] 52 51 Junior Officers 138 148 Other Ranks 156 160

[3]Sub-total: Permanent Force 353 367 Reserve Force[4] 160 160 Total Navy 513 527 ARMY Star Ranked Officers Senior Officers[2]

Junior Officers Other Ranks

[3]Sub-total: Permanent Force Reserve Force[4]

7 53

203 203 466 105

7 54

223 216 500 105

Total Army AIR FORCE Star Ranked Officers Senior Officers[2]

Junior Officers Other Ranks

[3]Sub-total: Permanent Force Reserve Force[4]

Total Air Force

571

9 95

471 365 940

37 977

605

9 88

465 366 928

50 978

APS Senior Executives Senior Officers[2]

Other APS Staff

34 1,483 3,979

37 1,547 4,180

Total:APS Staffing[5] 5,496 5,764 Professional Service Provider 167 164 Total Professional Service Provider[6] 167 164 Total DMO Workforce[7][8] 7,724 8,038

Notes 1. The Navy ADF staffing numbers includes a Rear Admiral for the new head of Future Submarine Project and Reserve Forces. 2. Senior Officers are of Colonel or Lieutenant Colonel rank equivalent and substantive APS Executive Level 1 and 2. 3. Reflects the ADF Permanent forces. Numbers for the Permanent Forces include Reservists undertaking continuous full-time

service. 4. Reservist figures represent numbers of active Reservists (excluding Reservists undertaking full-time service and Foreign

Service Reservists) who rendered service during 2008-09 and the estimate for DMO ADF Reservists for 2009-10. 5. The APS staffing numbers include potential savings under the Strategic Reform Program. 6. PSPs are individuals with specialist skills contracted to fill a line position and have been reduced by 100 for conversion to

APS. 7. Personnel numbers are forecasts of the average strength for 2008-09 and 2009-10. 8. This table includes allowances for Defence Strategic Reform Program, new acquisition and sustainment activities.

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1.3 Budget measures

Budget measures relating to the DMO are detailed in Budget Paper No. 2 and are summarised below.

Table 63: Agency 2009-10 Budget Measures[1]

Program 2008-09 2009-10 2010-11 2011-12 2012-13 $'000 $'000 $'000 $'000 $'000

Expense measures (if applicable) Global supply chain opportunities 1.3

Departmental expenses - - - - -Priority Industry Capability Centres of Excellence 1.3

Departmental expenses - - - - -Australian Defence Force systems integration capabilities - improvements 1.3

Departmental expenses - - - - -Total - - - - -

Total expense measures Departmental - - - - -

Total - - - - -

Note 1. Prepared on a Government Financial Statistics (fiscal) basis.

1.4 Transition from Outcomes and Outputs to Outcomes and Programs

From the 2009-10 Budget, all General Government Sector (GGS) entities will be reporting on a program basis. The figure below outlines the transition from the 2008-09 Budget year (as at Additional Estimates), which was presented in administered items, outputs and output groups to the program reporting framework used for the 2009-10 Budget. The table also captures revisions made to GGS outcome statements under the Operation Sunlight Outcome Statements Review.

Figure 5:Transition from Outputs to Programs Framework

2008-09 Budget year 2009-10 Budget year

Outcome 1: Defence capabilities are supported through efficient and effective acquisition and through-life support of materiel

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

Output 1.1: Management of Capability Acquisition

Program 1.1: Management of Capability Acquisition

Output 1.2: Management of Capability Sustainment

Program 1.2: Management of Capability Sustainment

Output 1.3: Provision of Policy Advice and Management Services

Program 1.3: Provision of Policy Advice and Management Services

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Figure 6: Contributions to outcomes and programs

The outcome 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.


Total Price of Programs: $11,850.699m

Total Departmental outcome appropriation: $851.082m

Administered Appropriation: Nil

Outcome 1 Contributing to the preparedness of the Australian Defence organisation through

acquisition and through-life support of military equipment and supplies

Total price: $11,850.699m Total Departmental outcome appropriation $851.082m

Program 1.1 Program 1.2 Program 1.3 Management of Capability Management of Capability Provision of Policy Advice and

Acquisition Sustainment Management Services

Total price: $6,271.896m Total price: $5,474.108m Total price: $104.695m Total Departmental program Total Departmental program Total Departmental program appropriation: $242.797m appropriation: $515.944m appropriation: $92.341m

1.5 Programs for which Treasury is appropriated under the New Federal Financial Relations Framework

The DMO has no specific purpose payments and hence no amounts are required to be appropriated to Treasury under the new framework.

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Section 2: Outcome and planned performance

2.1 Outcome and performance information

Agencies deliver programs which are the Government actions taken to deliver the stated outcomes. Agencies are required to identify the programs which contribute to Government outcomes over the Budget and Forward Estimates.

The DMO 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.

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

Outcome 1 Strategy

The core business of the DMO is to manage the currently approved major and minor acquisition projects and sustain the existing ‘fleets’ of military equipment. As part of this, the DMO provides advice on cost, risk and schedule for military equipment and develops acquisition strategies for the capability throughout the life cycle.

The delivery of services is managed through purchaser-provider arrangements with Defence. As new projects are approved, projects transition to sustainment or equipment is retired, new agreements are struck under the purchaser-provider framework.

Each agreement identifies the requirement (deliverables), cost, schedule, risks and performance criteria. The DMO’s performance is measured against the key performance indicators within these agreements.

The principal agreements are the Materiel Acquisition Agreements (MAAs) and the Materiel Sustainment Agreements (MSAs).

MAAs define the DMO’s acquisition services to be delivered to Defence for all major and minor capital equipment projects. Agreements are between the Chief of the Capability Development Group, on behalf of Defence, and the CEO DMO for major capital equipment; and between the relevant Capability Managers (primarily the Chiefs of Navy, Army and Air Force) on behalf of Defence, and the CEO DMO for minor capital projects. In the future, Capability Managers will also be signatories to MAAs for major 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 Government. The scope description is a reference to underlying capability specifications and key measures of capability effectiveness as approved by the Government. The schedule description outlines key milestones. The budget information provides current estimates of Defence cash payments against projected expenditure, and an assessment of the adequacy of the available contingency budget.

This budget statement reports project schedule performance against Defence capability milestones of Initial and Final Operational Capability (IOC and FOC). However, 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. Therefore, the DMO has introduced Initial Materiel Release and Final Materiel Release milestones which will, in future, mark the delivery and release to Capability Managers of materiel supplies it undertakes to provide under the MAAs to support the achievement of IOC and FOC by the relevant Capability Manager.

MSAs are established between the CEO DMO and the relevant Capability Manager and define the sustainment 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 services.

Monthly reports against all purchaser-provider agreements are provided to the Defence customer.

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Program risks

Successive reviews and analyses have shown that 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.

Schedule risks

Delays can occur throughout the capability development process - from delays in Government decision making through to delivery by suppliers. The DMO is exploring ways to improve schedule management by:

• setting realistic schedules

• improving the transition of projects to the DMO

• 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

• clarifying schedule risk due to materiel issues versus other inputs to capability.

Cost estimate risks

The DMO faces some uncertainty in estimating the cost of acquiring and supporting highly complex and evolving military equipment, much of it at the forefront of new technology. Cost estimates are highly problematic, but an important consideration when assessing capability options. All capability enhancements are delivered in an environment of budget constraints, and robust costings allow informed choices to be made between different capability options. Accurate whole-of-life cost estimates are difficult to achieve, because of long lead times between key decision points and introduction into service, changes in technology, and changes in the regulatory environment. There is also the potential for significant future year expense and revenue gaps to arise should price variation clauses in contracts trigger significant price changes at variance with revenue adjustments from the Department of Finance and Deregulation through Defence.

Outcome 1 Budgeted Expenses and Resources

Table 64 provides an overview of the total expenses for Outcome 1 by program.

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Table 64: Budgeted Expenses and Resources for Outcome 1

Outcome 1: Contributing to the preparedness of the Australian Defence 2008-09 2009-10 Organisation through acquisition and through-life support of military Estimated Estimated equipment and supplies actual expenses

expenses $'000 $'000

Program 1.1: Management of Capability Acquisition Departmental expenses

Ordinary annual services (Appropriation Bill No. 1) - 242,797 Special Accounts 4,414,732 6,012,975 Expenses not requiring Appropriation in the Budget year 16,124 16,124 Total for Program 1.1 4,430,856 6,271,896

Program 1.2: Management of Capability Sustainment Departmental expenses

Ordinary annual services (Appropriation Bill No. 1) - 515,944 Special Accounts 4,839,669 4,941,703 Expenses not requiring Appropriation in the Budget year 16,461 16,461 Total for Program 1.2 4,856,130 5,474,108

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

Ordinary annual services (Appropriation Bill No. 1) 94,960 92,341 Special Accounts 1,002 5,301 Expenses not requiring Appropriation in the Budget year 7,053 7,053 Total for Program 1.3 103,015 104,695

Total expenses for Outcome 1 9,390,001 11,850,699 Average Staffing Level (number) 5,496 5,764

Note 1. Average staffing levels do not include military staff posted to the DMO, as military staff remain employees of Defence and are

included in its staffing numbers. The average staffing levels for military staff posted to the DMO are provided in Table 62.

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 manner, on time, within budget and to the required 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.

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Program 1.1 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 estimated 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 $6,271.9m in 2009-10 which represents 53 per cent of the DMO’s total expenses.

The planned resource use for Program 1.1 includes:

• direct appropriation of $242.8m relating to Acquisition Service Fee

• the DMO major capital investment program of $5,840.9m, which comprises of the Approved Major Capital Investment Program of $5,262.4m and $578.5m of work planned to be transferred to the DMO during 2009-10

• the DMO minor capital investment program of $172.1m, including the approved minor program of $110.6m

• resources received free of charge from Defence ($16.1m).

Table 65: Program 1.1: Management of Capability of Acquisition 2008-09 2009-10 2010-11 2011-12 2012-13 Revised Budget Forward Forward Forward budget year 1 year 2 year 3

$’000 $’000 $’000 $’000 $’000 Annual Departmental Expenses:

Ordinary annual services (Appropriation Bill No. 1) - 242,797 248,060 256,935 266,291

Special Account Expenses: Defence Materiel Special Account 4,414,732 6,012,975 6,603,624 6,406,532 4,983,648 Expenses not requiring Appropriation in

the Budget year 16,124 16,124 16,124 16,124 16,124 Total Departmental Expenses 4,430,856 6,271,896 6,867,808 6,679,591 5,266,063

Program 1.1 deliverables • the DMO is currently managing over 210 major projects. A major capital equipment project is

defined as a project with strategic importance and is part of the Defence Capability Plan.

• 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 67.

• minor capital projects deliver capability to meet emerging enhancement, replacement or new requirements of relatively low values and are funded from allocations outside the Defence Capability Plan. There are six Defence Minor Capital Investment Programs, funded by the Capability Managers through Materiel Acquisition Agreements as described in Outcome 1 - Strategy. There are currently over 150 minor projects with an average value of $7.7m.

Program 1.1 key performance indicators • the indicators vary with each project and are specified in the Materiel Acquisition Agreements.

Australian defence industry involvement in major capital equipment projects will be reported as an appendix in the Defence Annual Report 2009-10.

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Top 30 projects by 2009-10 forecast expenditure Table 66 lists the Top 30 Government approved projects by forecast expenditure for 2009-10. Schedules for delivery of the capability are included in the project descriptions. Descriptions also include project risks and strategies employed by the project office to manage risk.

[1] Table 66: Top 30 projects by 2009-10 forecast expenditure

Project Number/

Phase

Approved Project

Expenditure

Estimated Cumulative

Expenditure to 30 June 2009

Budget Estimate 2009-10

$m $m $m Bridging Air Combat Capability Super Hornet Bridging Air Combat Capability Super Hornet AIR 5349

Phase 1 4,178 1,059 1,401 Air Warfare Destroyer Air Warfare Destroyer – Build SEA 4000

Phase 3 7,971 1,140 1,137 General Manager Programs Amphibious Deployment and Sustainment JP 2048

Phase 4A/4B Helicopter Systems Multi Role Helicopter (MRH) AIR 9000

3,412 354 615

Phase 2 4,076 1,155 429 Armed Reconnaissance Helicopter AIR 87

Phase 2 2,077 1,491 203 Aerospace Systems ADF Air to Air Refuelling Capability AIR 5402 2,038 878 425 F/A-18 Hornet Upgrade AIR 5376

Phase 2 2,013 1,349 159 F/A-18 Hornet Upgrade – Structural AIR 5376 Refurbishment Phase 3.2 910 252 61 AP-3C Electronic Support Measure Upgrade AIR 5276

Phase 8B 129 27 33 AP-3C Capability Assurance Program AIR 5276

CAP 1 91 14 28 Maritime Systems Anzac Anti-Ship Missile Defence SEA 1448

Phase 2B 450 136 131 Guided Missile Frigate Upgrade SEA 1390 Implementation Phase 2.1 1,527 1,281 77 Standard Missile Replacement (SM-1) SEA 1390

Phase 4B 629 243 58 New Heavyweight Torpedo SEA 1429

Phase 2 469 248 34 Electronic Systems Next Generation Satellite Program JP 2008

Phase 4 1,081 83 126 Ultra High Frequency Satellite Communication JP 2008

Phase 5A 292 35 89 Electronic Warfare Self Protection for Selected AIR 5416 ADF Aircraft – Echidna Phase 2 313 221 41 Tactical Information Exchange Domain JP 2089

Phase 2A 105 5 37 New Air Defence Command and Control AIR 5333 Systems for Control Units 2 & 3 (2CRU/3CRU) 271 174 27

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Land Systems Upgrade of M113 Armoured Vehicles Bushmaster Protected Mobility Vehicle Project Bushranger Overlander Field Vehicles

Airborne Early Warning and Control System Airborne Early Warning and Control Aircraft

Explosive Ordnance Mulwala Redevelopment Project

Lightweight Torpedo Replacement

Bridging Air Combat Capability – Weapons

Follow-on Stand Off Weapon

Evolved Sea Sparrow Missiles

New Air Combat Capability Detailed Analysis and Acquisition Planning

Human Resources and Corporate Services Improvements to the Logistics Information Systems

LAND 106 LAND 116 Phase 3 LAND 121 Phase 3

AIR 5077 Phase 3

JP 2086 Phase 1 JP 2070 Phase 3 AIR 5349 Phase 2 AIR 5418 Phase 1 SEA 1428 Phase 4

AIR 6000 Phase 1B

JP 2077 Phase 2B

892

912

2,919

4,089

368

321

222

420

93

109

128

446

481

20

2,549

146

132

30

162

47

72

93

115

114

43

97

84

72

60

33

28

37

26

TOTAL ESTIMATE Other Approved Project Estimate Total Program Estimate for Major Capital Projects Management Margin[2]

Estimated Outturn from existing Major Capital Projects Projects Planned for Government Consideration

42,505 34,117 76,622

14,323 29,284 43,607

5,820 665

6,485 -1,223 5,262

579 Total Funds Available 5,841

Notes 1. The Top 30 Projects are based on a review of expenditure plans for 2009-10 and the following years conducted in

March 2009. One project was removed from the Top 30 list due to its security classification. 2. Management margin is an estimate of possible overall approved capital program expenditure slippage that may accrue as the

2009-10 year progresses. Refer to subsection 2.1.

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Top 30 Project Descriptions

Bridging Air Combat Capability

Bridging Air Combat Capability—Super Hornet AIR 5349 Phase 1

Prime Contractor: Boeing Company under a FMS arrangement with the United States Government.

Project AIR 5349 Phase 1 will acquire 24 F/A-18F Block II Super Hornet multi-role aircraft and associated support systems and services to ensure that Australia’s air combat capability edge is maintained through the transition to the F-35 Joint Strike Fighter during the coming decade.

First and second pass Government approvals for the project were granted in March 2007. Aircraft, technical support and ancillary equipment are being supplied through FMS arrangements with the United States Government. The contract for the supply of the aircraft was finalised in July 2008 and the Boeing Company commenced production of the first RAAF Super Hornet aircraft in December 2008. The first two aircraft will be delivered ahead of contract schedule and commence test activity in the US during the third quarter of 2009. The first four aircraft are scheduled for delivery and commencement of operations in the second quarter of 2010. IOC will be achieved in December 2010 and FOC will be achieved in December 2012. Support arrangements are being established through 2009 to include a mix of FMS support via the USN and direct commercial arrangements in Australia and existing ‘classic’ Hornet support 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 Warfare Destroyer

Air Warfare Destroyer Build—SEA 4000 Phase 3

Prime Contractor: The SEA 4000 program is being delivered under an Alliance-based contracting arrangement between ASC AWD Shipbuilder Pty Ltd, Raytheon Australia Pty Ltd and the Commonwealth.

• The Commonwealth also has a Platform System Design contract with Navantia SA, the ship designer.

• Supply of the Aegis Combat System by the USN is via a Foreign Military Sales (FMS) agreement.

The SEA 4000 Air Warfare Destroyer (AWD) program is currently in the construction phase, Phase 3, to deliver three Hobart Class air warfare capable destroyers.

The Hobart class will be the Navy’s first Aegis-equipped ships, with the most modern version of Aegis installed in a non-USN ship.

Overall, the AWD program is within budget and on schedule with all major milestones achieved. The Government will consider acquiring a fourth AWD in the next few years.

Major milestones in 2009 include the commencement of steel fabrication for the first AWD, HMAS Hobart, followed by Critical Design Review in December 2009.

These developments reflect the AWD program’s major transition during 2009 from planning, design and definition activities to physical execution and construction.

Areas of risk for the program include evolving legislative and regulatory compliance requirements, the need to ensure robust Commonwealth oversight and Alliance management of key processes, and the potential for delays in the delivery of production data packages to block fabricators and in the completion of the shipyard infrastructure in Adelaide. There are strategies in place to mitigate these risk areas including good governance arrangements that incorporate a range of audits and systematic reviews, the staged release of information to the Production System Designer, and close and cooperative engagement by the Alliance with vendors and other parties.

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General Manager Programs

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

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

This project will acquire two 27,000 tonne Amphibious Ships to replace the Heavy Landing Ship HMAS Tobruk and one of the two Landing Platforms (either HMAS Manoora or Kanimbla). The acquisition contract was signed on 9 October 2007.

The project has a resident project team in Spain to monitor progress and develop operator data with the ‘parent navy’, Spain’s Armada Española.

The ships are adapted from the Spanish Juan Carlos I class. The Spanish builder and designer Navantia is the design authority and will build and fit out the hulls and transport them to Australia. The superstructures will be constructed, fitted out and integrated with the hulls by BAE Systems Australia Defence at its Williamstown dockyard, Melbourne. L-3 Communications is subcontracted to the prime contractor to supply the communications system and Saab Systems Australia to provide the combat system and integrate the combat management system. The ships will be built to commercial standards and will be certified by the classification society Lloyds Register.

Design reviews are expected to be completed in 2009 and the first-of-class keel-laying is to occur in September 2009. The ships are due to be accepted in January 2014 and August 2015.

This project is one of a number of complementary ones under the Amphibious Deployment and Sustainment Program and is intended to replace and enhance the Navy’s amphibious and afloat support capability. Phase 3 will acquire watercraft for the Amphibious Ships. Future projects will aim to acquire an afloat support ship to replace HMAS Success and a Strategic Lift Capability.

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 the 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.

Helicopter Systems Division

Multi Role Helicopter (MRH)—AIR 9000 Phase 2

Prime Contractor: Australian Aerospace

This project is acquiring 40 MRH-90 helicopters for the Army and six for the Navy under project AIR 9000 Phases 2, 4 and 6. The support systems will include an electronic warfare self protection support cell, a ground mission management system, a software support centre, an instrumented aircraft with telemetry, two full flight and mission simulators and facilities infrastructure at Townsville, Oakey, Brisbane and Nowra.

Five MRH-90 aircraft have been delivered. The first two MRH-90 were delivered on 18 December 2007 and the remaining two aircraft manufactured in France were accepted in 2008. The first of 42 aircraft to be assembled at Australian Aerospace’s Brisbane facility was accepted on 17 December 2008 and aircraft will be delivered through until late 2014. Initial training for aircrew, maintenance and support personnel was completed in France in 2007. Initial MRH-90 operations are being carried out from the 5th Aviation Regiment, Townsville.

CAE Australia is under contract to provide two full flight and mission simulators. After initial delays in achieving key sub-contract agreements and the required technical data, the simulator element of the project is now progressing well.

The major risk to the project remains being able to increase the low rate of flying needed to train sufficient crews and complete flight testing. The contractor and the Commonwealth project team have implemented initiatives to improve aircraft reliability, provide sufficient spares and to maximise the usage of available aircraft.

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In addition to aircraft acceptance throughout 2009-10, major project activities planned include the acceptance of the final MRH-90 baseline design, test and acceptance of the instrumentation system, acceptance of the ground mission management system, and continuation of the full flight and mission simulator design. A contract for the provision of ground training devices is expected to be signed in late 2009.

The project requirement is for IOC for the Navy of one aircraft at sea in 2010 and for a deployable troop of four aircraft for the Army in 2011.

Armed Reconnaissance Helicopter—AIR 87 Phase 2

Prime Contractor: Australian Aerospace

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.

As at 21 April 2009, Defence has accepted 16 ARH, the software support capability, the electronic warfare mission support system, the ground mission equipment, facilities, training courseware, four of the six ground training devices, the full flight and mission simulator and one of the two cockpit procedures trainers. The second cockpit procedures trainer is currently being installed in Darwin. A total of 13 Hellfire missiles have now been fired, all striking the target with precision; and single missile shot service release has been provided. Full service release has been achieved on the 30 millimetre gun and some Darwin operational unit personnel have qualified on the gun, firing 2600 rounds.

Flying and maintenance training is based at Oakey and the Darwin operational unit commenced flying operations with an initial three aircraft in June 2008. The fully instrumented test aircraft is operating from RAAF Edinburgh. Subcontractor support has been established at RAAF Edinburgh, South Australia, for the instrumented aircraft.

All 22 aircraft will be accepted by the end of 2010.

The project remains within budget, but it is 27 months behind schedule, due primarily to the early delay in the Franco/German program that impacted initial training of instructors and development of the simulators. A lead-in skills training program has been established in Darwin using two EC 135 helicopters to minimise transition time and maximise the training effect of the available ARH hours.

The main risks to the AIR 87 project are:

• Achievement of the required rate of flying hours for aircrew training and operational test and evaluation. The project is currently behind schedule because of this issue, but implementation of the resolution of the disputed matters with Australian Aerospace since agreement in April 2008 has increased confidence in the remaining schedule for development of an operational ARH capability for the Army.

• Although the level of technical maturity of ARH has increased significantly, it is still early in its life cycle for the very capable technologies it has. These still pose some risk to development of the ARH capability in the Army and require close management.

Aerospace Systems Division

ADF Air to Air Refuelling Capability—AIR 5402

Prime Contractors:

• EADS CASA, Spain (for acquisition)

• Qantas Airways Ltd (for through–life support).

This project is acquiring five new generation Airbus A330 Multi-Role Tanker Transport 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.

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Programmed expenditure during 2009-10 is based on payment milestones and earned value in relation to completion of the second phase of flight testing and contractual acceptance of the first aircraft (in Madrid, Spain), modification of the second and third aircraft (in Australia), and delivery of the fourth commercial A330 (to EADS CASA). Expenditure is also programmed for production/construction of the simulator training devices and simulation devices facility.

The second phase of flight testing commenced at the end of 2008 following incorporation of military systems and software into the first aircraft. Flight testing is expected to continue through to the third quarter of 2009. The six-month slippage to the start of flight test will not be recovered and delivery of the first aircraft is now expected in early 2010. The second KC-30A will return to Madrid in mid-2009, following conversion by Qantas in Australia, to assist with completion of test activities.

The project remains within the approved budget. Although achieving substantial progress to date, there remains moderate technical and schedule risk associated with the first-of-type qualification and certification of the new refuelling boom system and military avionics systems. Risks with the new refuelling boom have been mitigated by progress of flight testing on the A310 boom demonstrator and by the change to a two-phase conversion and test approach. Risks with development of the military avionics are being managed through a comprehensive systems integration approach including sub-system and system-level bench testing, as well as the use of the second KC-30A after mid-2009.

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 avionics upgrade

• The Boeing Company (US) – for electronic warfare self protection suite aircraft technical integration

• United States Navy – 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

• Boeing Defence Australia - for production installation of the electronic warfare self protection suite of modifications (contract awarded late April 2009).

Phase 2 of the Hornet upgrade project is upgrading the Air Force’s F/A-18 fleet to incorporate avionics enhancements that will improve mission situational awareness, and radar and electronic warfare capabilities. Phase 2 will also deliver an upgraded ground simulator training capability to match the upgrades being incorporated in the aircraft fleet.

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 established in late 2008. The modification of initial validation and verification aircraft for the mature electronic warfare capability has been successfully completed and full rate production will commence in May 2009. A contract for the acquisition of the new Hornet data recorder will be awarded in mid-2009. All other acquisition contracts for procurement of equipment to support the supplementary countermeasure and electronic countermeasure capabilities are in place.

The key risks 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 risk is assessed as medium.

F/A-18 Hornet Upgrade – Structural Refurbishment—AIR 5376 Phase 3.2

Prime Contractors:

• L-3 Communications MAS Inc (Canada) for the centre barrel replacement program, which includes non-recurring engineering/modification and production installation.

• Two interim contracts with Boeing Defence Australia and BAE Systems Australia are currently operating for the Structural Refurbishment Program 1D production installation. A new contract is currently being negotiated with the preferred tenderer.

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AIR 5376 Phase 3.2 is the second stage of a multi–stage structural refurbishment program for the Air Force’s F/A-18 Hornet fleet. This phase currently provides for up to 10 centre barrel replacements and additional discrete structural modifications on 42 aircraft as part of Structural Refurbishment Program 1D.

Centre barrel replacement is in full rate production with all 10 aircraft inducted. The first two aircraft have been returned to service. Production is occurring within budget and schedule.

Engineering studies completed in May 2008 showed the fatigue life limit of the aircraft could be extended beyond the current limits, resulting in a reduction in the number of aircraft requiring centre barrel replacement. However some of the savings may be redirected to introduce new structural refurbishment work to address several new emerging ageing aircraft issues such as corrosion in Hornet undercarriages, wings and other structural locations.

Installations under Structural Refurbishment Program 1D are continuing, with 19 of the 42 aircraft completed to date. The program is scheduled to be completed by December 2012.

There is a moderate to low risk to Hornet Upgrade Phase 3.2 schedule due to emergent work caused by the ageing condition of aircraft. There has also been a degree of risk associated with the establishment of a new contract for Structural Refurbishment Program 1D. However, a contingency plan to use interim contract arrangements was used to prevent delay to the production schedule and negate schedule risk. The overall risk for this project is low.

AP-3C Electronic Support Measure Upgrade—AIR 5276 Phase 8B

Prime Contractor: BAE Systems Australia Limited

This project is upgrading the AN/ALR-2001 Electronic Support Measures System of the Air Force’s AP-3C Orion aircraft. The system is an integral part of the aircraft’s sensor suite and is used in maritime surveillance tasks to passively detect, locate, classify, and track surface and airborne emissions.

Under the prime contract, detailed design reviews for the aircraft and ground support systems are expected to be conducted in September 2009. A contract for platform design and integration is expected to be awarded in late 2009. An estimated delay of 12 months to IOC from 2011 to 2012 is attributed by BAE Systems to a dependency with AIR 5077 (Airborne Early Warning & Control) and the contractor’s under-estimation of the software development activity.

While the dependency with AIR 5077 has been largely mitigated, this remains a risk. Availability of aircraft and ground systems to undergo modification as required by the prime contract continues to be a risk given the high tempo of AP-3C Orion aircraft operational commitments.

AP-3C Capability Assurance Program—AIR 5276 CAP 1

Prime Contractors: The P-3 Accord is the prime systems integrator of elements provided by:

• BAE Systems Defence – for design and integration

• Australian Aerospace – for installation

• FLIR Systems Inc – for electro-optics systems

• L-3 Communications under a Foreign Military Sales (FMS) arrangement with the United States (US) Government – for tactical common data link systems.

The Capability Assurance Program (CAP 1) aims to consolidate a number of capabilities which have been provided as rapid acquisitions in support of operations over the past few years. These include electro-optic sensors and recorders, and data links for transmission of video and images, together with associated ground support systems.

The Government granted second pass approval for CAP 1 in July 2008 and contracts are already in place for the data link system and electro-optics. An integration contract is currently being negotiated with BAE Systems Defence.

Major achievements for 2009–10 will be receiving electro-optics and tactical common data link systems, and commencing the integration contract.

Achieving the prime integration contract signature as scheduled in June 2009 is considered a medium risk.

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Maritime Systems Division

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 Systems and BAE Systems).

This project delivers 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. It also delivers a new dual navigation radar system to replace the existing navigation radar suite. A first-ship installation will prove operational capability before commitment to installation in all ships of the class.

Ship One production hardware, which is related to the phased array radar system, is planned for delivery in January 2010. Structural changes to the first ship to accommodate the radar will occur from early 2010.

Under a revised acquisition strategy, the Commonwealth may withdraw from contracts if risks have not been retired adequately at defined decision points. The medium-to-high technical risk is due to the leading edge radar technology which is being developed in Australia as new capability for the Anzac class frigate. The medium risk to ship-borne system integration from January 2010 is mitigated by the conduct of specific risk reduction activities ashore during June-December 2009.

Guided Missile Frigate Upgrade Implementation—SEA 1390 Phase 2.1

Prime Contractor: Thales Australia

The project is to upgrade four Adelaide class ships to deliver upgraded and integrated combat systems including sensors, missile launchers and associated platforms systems, add a training system to the onboard ship combat system, and improve the reliability of the ship platform systems.

HMA Ships Sydney, Darwin, and Melbourne and the land-based Warfare System Support Centre have been accepted from the contractor with deficiencies which are to be addressed during 2009-10. The Navy continues to operate these ships for a wide variety of important roles in local and regional deployments and training of Navy personnel for future operations. The project continues on schedule for provisional acceptance of the last ship to be upgraded, HMAS Newcastle, in June 2009.

The high risk to achieving capability effectiveness of the electronic support and torpedo defence systems will be mitigated by a remedial action program during 2009-10.

Standard Missile Replacement (SM-1)—SEA 1390 Phase 4B

Prime Contractor: The DMO is the procurement coordinator, supported by the US Department of Defense under a FMS arrangement and commercial contracts. Original equipment manufacturers are engaged through commercial contracts to mitigate technical and schedule delivery risk of the SM-2 capability.

This project is to replace the current standard missile with a modern variant of the SM-2 and, in conjunction with Project SEA 1390 Phase 2.1 FFG Upgrade, improve the guided missile frigate air defence capability.

The delivery of SM-2 missiles and spare missile sections is expected to be completed in July 2009. Software development, integration and testing will be conducted in August 2009. Demonstration of the SM-2 initial operational capability is scheduled for late 2009.

The risk of schedule slippage in system and software installation and testing, and materiel procurement lead times is mitigated by rigorous monitoring of schedules by integrated product teams.

New Heavyweight Torpedo—SEA 1429 Phase 2

Prime Contractor: US Department of Defense under a memorandum of understanding. Raytheon USA, the US Naval Undersea Warfare Center, and platform modification by ASC Pty Ltd.

The project will acquire the heavyweight torpedo for the Collins class submarine to replace the USN Mk 48 Mod 4 Heavy Weight Torpedo currently in service with the Royal Australian Navy. The project will also acquire the associated logistic support, weapon system interface equipment, operational support and test equipment, and will transition the weapon into service.

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Installation in HMA Ships Waller and Farncomb is complete and operationally proven in Waller. Modifications to HMA Ships Dechaineux and Sheean are progressing satisfactorily in conjunction with other capability upgrades and routine maintenance. Dechaineux is expected to complete its docking in late 2009. Shipments of torpedoes to Australia will continue during 2009-10 to meet the Navy’s requirements. Negotiations to extend the memorandum of understanding to 2018 are expected to be completed by the end of 2009.

Synchronisation of the installation schedule with the submarine docking program and any change in that program is a medium risk to the project delivery schedule, mitigated by consultative management.

Electronic Systems Division

Next Generation Satellite Program—JP 2008 Phase 4

Prime Contractor: Boeing via the US Government

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

Interim anchoring provides early access to the first block of WGS satellite flights 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 requires the ability to anchor the satellites and interface into the ADF networks. The interim anchoring capability will be delivered incrementally commensurate with both operational needs and WGS capacity available to Australia.

The first satellite (WGS-1), with a footprint over the Pacific Ocean, has been providing operational capability to Australia since June 2008. The second satellite (WGS-2) is expected to provide operational capability from August 2009. WGS-3 which is not viewable from Australia, is scheduled for launch in August 2009. The project is progressing the interim anchoring and offshore anchoring solutions to allow indigenous anchoring of WGS from the eastern and western seaboard. Planning and monitoring tools will be installed in the Defence Network Operations Centre by December 2009 to provide real-time management of the WGS resources allocated to Australia under the partnership.

The highest risk for this project remains satellite launch failure. With the successful launch of WGS-1 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 Contractors: Intelsat LLC

This 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 some ground infrastructure to support the increased capacity provided by the payload beyond that currently available to the ADF.

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The key activity for Phase 5A during 2009-10 will be design of the satellite and hosted payload. The contractor will hold a systems requirements review, specify the power amplifiers, which are a critical component to commence production, and conduct the preliminary design review.

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

Electronic Warfare Self Protection for Selected ADF Aircraft-Echidna—AIR 5416 Phase 2

Prime Contractors: BAE Systems – Phase 2A and 2B

Phase 2A - Modification of the S-70A-9 (Black Hawk) and CH-47D (Chinook) aircraft with electronic warfare self protection.

Phase 2B - Modification of the C-130H aircraft with electronic warfare self protection. This phase is now completed.

The Echidna Phase 2A program has completed installation of the electronic warfare self protection suite onto the prototype Black Hawk aircraft. Ground testing by BAE Systems on this aircraft has commenced and the aircraft will be available for flight testing by Aerospace Operational Support Group in late 2009.

Pending completion of the ground test program, the Echidna electronic warfare self protection suite has also been installed on a Lear Jet test aircraft to allow for retirement of the residual software development risk of the project throughout 2009. The final decision by the Army on the number of Black Hawk aircraft to receive the full Echidna capability will be made based on progress shown with the prototype aircraft and the retirement of the software development risk on the Lear Jet aircraft.

During 2007, using supplementary funding provided by the Army, the Echidna 2A project implemented an early delivery strategy for 12 Black Hawk aircraft to be fitted with a subset of the Echidna 2A capability, comprising a missile warning system and countermeasures dispensing system. Five aircraft have currently been modified and the remaining seven aircraft are expected to be modified by the end of 2009.

During 2004, a similar incremental capability delivery strategy was arranged through the Echidna project to fit a missile warning system and counter-measures dispensing system to all Chinook aircraft. This basic capability allowed for the overseas deployment of the Chinook in 2006. Due to ongoing aircraft availability issues with the Chinook, further upgrades of the aircraft to the full Echidna standard have been suspended.

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 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).

JP 2089 Phase 2A Tactical Information Exchange Domain for the Anzac class frigate legacy platform 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 might be built.

Deliverables for 2009-10 include completion of the multi-link upgrade preliminary design review for the Anzac frigate and procurement of the hardware and software that will manage the tactical information exchange data links.

The Anzac interface risk is classified as a medium risk and will be mitigated through the engagement of the original equipment manufacturer to undertake the integration work.

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The interoperability risk will be mitigated through the normal through-life interoperability process, whereby the required messages to be communicated between platforms are assessed and any incompatibilities discovered are treated in one or more of a variety of methods. The support infrastructure is intended to provide an environment for testing and resolving issues associated with variable message format versions and interoperability with land forces.

New Air Defence Command and Control Systems for Control Units 2 & 3 (2CRU/3CRU)—AIR 5333 Project Vigilare

Prime Contractor: Boeing Australia Ltd

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

The critical design review, preliminary system testing, Northern Territory facilities upgrades and significant communications infrastructure enhancements were completed during 2008-09. The contractual issues between Boeing and the DMO were resolved in October 2008 with the deed of settlement, release and amendment. The deed revised delivery dates for the Northern Regional Operations Centre (NROC) located at RAAF Tindal and the Eastern Regional Operations Centre located at RAAF Williamtown to April 2010 and June 2011 respectively. The major activities for 2009-10 will be the completion of system testing, NROC Site Acceptance Testing, extensive training programs for the Air Force, an operational test, followed by service release of the NROC capability to the Air Force.

The major technical risk continues to be integrated tactical data links development, 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 largely completed.

The major schedule risk is integrated logistics support. As part of the capability transition to the Air Force, training and technical publications are required to induct the Air Force operational and maintenance communities onto the new Vigilare systems. The current work-scope associated with integrated logistics support provides Boeing with a challenge to meet the deed revised delivery dates.

Land Systems Division

Upgrade of M113 Armoured Vehicles—LAND 106

Prime Contractor: BAE Systems Australia Defence

The 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 Enhanced Land Force.

The construction of armoured personnel carrier, fitters and recovery variants is continuing and design development of the logistics, command, ambulance and mortar variants is progressing well and will continue through to late 2009 or early 2010. The final contracted delivery date for all 431 vehicles is now October 2011.

The major design development risks have been retired due to the initial testing of the first three vehicle variants using a drive system that is common across all variants. The logistic variant encompasses a new hull design and was assessed as the most technically challenging of the remaining variants. A comprehensive development test program has now been completed by the contractor.

The contractor remains committed to the delivery of the 431 vehicles as contracted by October 2011; however, Defence assesses this as a high risk as the required ramp-up of production relies on the contractor establishing its new facilities at Williamstown,Victoria, and Wakefield, South Australia, and upgrading services in the Bandiana facilities, Victoria, in sufficient time to support the vehicle assembly line requirements.

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Bushmaster Protected Mobility Vehicle – Project Bushranger—LAND 116 Phase 3

Prime Contractor: Thales Australia

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 the 144 Enhanced Land Force vehicles commenced in November 2007 and was completed in April 2009. Delivery of the 293 Bushmaster vehicles for Land 121 Overlander Phase 3 commenced in April 2009 and will be completed by June 2012. A request for tender for the provision of up to 184 protected mobility vehicle compatible trailers to meet an element of Land 121 Overlander Phase 3 was released to Thales in December 2008 with a closing date of 22 May 2009.

In June 2007, the Government approved the rapid acquisition of an additional 72 protected weapon stations, 116 automatic fire suppression systems and 116 purpose designed spall curtains to further enhance the protection level of those vehicles currently deployed on operations and the pre-deployment training fleet. All protected weapon stations have been delivered and fitted.

All automatic fire suppression systems have been delivered and fitment commenced to deployed vehicles in February 2009. The purpose-designed spall curtains commenced delivery in December 2008 and fitment commenced to deployed vehicles in February 2009 and is expected to take six months.

Key risks to the project are:

• the configuration of the baseline 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. This will be managed through the conduct of interoperability tests on similar trailers and modelling to evaluate the impact.

• the operational tempo may affect the availability of vehicles and delay the fitment of the automatic fire suppression systems and spall curtains.

Overlander Field Vehicles—LAND 121 Phase 3

Prime Contractors:

• Light/Lightweight Capability: Mercedes Benz Australia Pacific

• Trailer Capability: Haulmark Trailers Australia

• Medium/heavy capability: yet to be selected

• Additional Bushmaster vehicles: Thales Australia.

The project is a multi-billion dollar project to provide the ADF with replacement field vehicles, modules and trailers. The project comprises:

• Light/lightweight capability - supply of vehicles with limited protection capability. A contract was signed with Mercedes Benz Australia Pacific in October 2008 for the supply of G-Wagons. The modules sub-contractor is G.H. Varley of Newcastle. First deliveries are due in 2011

• Trailer Capability – currently in negotiations with Haulmark Trailers Australia

• Medium/heavy capability – in August 2008 the Commonwealth ceased negotiations with the preferred tender for this segment due to increased risks with the offer and the need to increase vehicle protection levels. The Commonwealth is refreshing the four remaining tenders (Mercedes Benz Australia Pacific, MAN Nutzfahrzeuge, BAE Systems and Thales). Comparative evaluation testing will lead to a down-selection of preferably two tenderers for the final offer definition and refinement process. Contract signature is due mid-2011 and first delivery is due in 2013.

• Additional Bushmaster Vehicles – 293 Bushmasters are to be purchased from Thales Australia under LAND 116.

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Key project risks are as follows:

• there is a chance that the requirement to integrate new generation communications equipment into the light/light weight vehicles and modules prior to capability delivery may impact on cost and schedule

• there is a chance that the medium/heavy capability basis of provisioning will be affected by industry prices substantially surpassing the estimated project costing.

Airborne Early Warning and Control Program—Project Wedgetail

Airborne Early Warning and Control Aircraft—AIR 5077 Phase 3

Prime Contractor: Boeing (United States)

This 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 2008, Boeing advised a further schedule delay of two months to the delivery of the first fully mission capable aircraft, due to continuing problems associated with sub–system integration and radar and electronic support measures maturity. Boeing now proposes delivery of the first aircraft in March 2010, a total delay of 40 months against the contract baseline. While doing everything it can to assist Boeing to achieve this schedule, the DMO assesses that the date of March 2010 is under considerable pressure.

Because of the schedule delays, the first three aircraft continue to be used to support the developmental test and evaluation and acceptance test and evaluation activities. The fourth and fifth aircraft successfully completed the first stage of their modification programs and functional check flights in January 2009. They are scheduled to complete the remainder of their modification programs by the end of 2009 and the sixth aircraft is scheduled to complete its modification program by early 2010.

The initial AEW&C facility at RAAF Tindal was accepted in April 2009 and the contracting process for the rest of the Tindal precinct is well advanced following approval by Parliament in June 2008. The Operational Flight Trainer was accepted in February 2009.

The major risks to the project are radar and electronic support measures technical maturity, mission computing development, integrated system performance and the complexity and concurrency of the test and acceptance program. Technical risk continues to be assessed through formal test and operational evaluation activities, which will be used to inform any decision to proceed to acceptance. Close coordination is being maintained between Boeing, the DMO and the Air Force.

Explosive Ordnance Division

Mulwala Redevelopment Project—JP 2086 Phase 1

Prime Contractor: Bovis Lend Lease

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.

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

During 2009-10, the detail design will be finalised and construction works substantially completed. The performance and safety test centre is expected to be completed by August 2009 for early handover to Thales. Practical completion of construction is scheduled for July 2010 with commissioning to commence soon after.

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.

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There is also a risk that the strategy the contractor has employed to undertake initial construction activities prior to completion of detailed design to mitigate against schedule slippage may impact on schedule and/or 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.

Lightweight Torpedo Replacement—JP 2070 Phase 3

Prime Contractors: Eurotorp, Thales

The project involves the assembly of locally and internationally produced torpedo components into MU90 torpedoes using facilities at Fleet Base West, Western Australia. Phase 3 will establish an Australian manufacturing and support capability for the Eurotorp MU90 lightweight torpedo, and deliver a number of reserve stock rounds.

Significant activity during 2009–10 includes the delivery of the proof of capability of the Mk II torpedoes as part of Phase 3, by Eurotorp and Thales. Phase 3 also includes the commissioning and set to work of the commercial processes related to the Australian production of the torpedo components and associated equipment and contracting for the initial deliveries of equipment to support local production.

The major risk to this phase is potential difficulty in transferring overseas supplier skills and technical knowledge for a complex weapon system into Australian defence industry. Management of this risk is necessary to provide in-country through-life support for the torpedo weapon system. This risk has been mitigated through close management of the transition plan and provision of financial incentives for the contractor to meet its obligations. Delivery of the proof 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 proof of 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 working closely with the contractors and liaison with the MU90 user group community internationally.

Bridging Air Combat Capability Weapons—AIR 5349 Phase 2

Prime Contractors: FMS arrangements with the USN

AIR 5349 Phase 2 will acquire and introduce into service a number of new weapons and countermeasures under the Australian Super Hornet program. These weapons will significantly enhance the ADF’s ability to conduct air, land and maritime strike operations. This project is running concurrently with AIR 5349 Phase 1 to ensure IOC for the Bridging Air Combat Capability is met by December 2010.

Defence has established FMS cases for the acquisition of AIM-9X Sidewinder missiles, AGM-154 Joint Stand Off Weapons, Infrared flares, and is seeking to acquire additional AIM-120 Advanced Medium Range Air to Air Missiles. Delivery of the first weapons acquired by the project is expected by December 2009, with associated training and certification activity being undertaken in early 2010 to support planned operational test and evaluation in the later half of 2010.

The program IOC and FOC dates of December 2010 and December 2012 respectively do not allow for any significant schedule slippage. Principle risks associated with introduction into service relate to the delivery of updated software and supporting data. Mitigation for these risks is centred on continued liaison with the USN to ensure these products are delivered in a timely fashion.

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 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 is being conducted in Australia, while the USN continues to develop the F/A-18 A/B operational flight program software. The Australian flight test program is due for completion by August 2009. Once cleared, the F/A-18 A/B

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will carry the JASSM and use the USN-developed operational flight program in the Australian test and evaluation program. This will culminate in live missile firings, conducted in both the US and Australia around March 2010 and May 2010 respectively, to validate aircraft integration and missile capabilities. The capability requirement to engage a moving maritime target is an option under the contract. Proceeding with this option depends on USAF development of an anti-surface warfare capability within a timeframe that is suitable for the Australian application. Defence continues to collaborate with the USAF on the definition of its maritime interdiction requirements, while independently continuing to fund Lockheed Martin to conduct simulation studies into the missile performance in a maritime environment.

The project has three main risks against achieving IOC. The first remains the timely development, by the USN, of the F/A-18 A/B operational flight program. The second is the ability to successfully demonstrate end-to-end capability in Australia. The third is the timely delivery of weapons as a result of current issues in the US concerning weapon reliability. These risks are rated high and are being mitigated through close engagement with the USN, USAF, US Department of Defense and key Defence stakeholders on scheduling and programming.

Evolved Sea Sparrow Missiles—SEA 1428 Phase 4

Prime Contractor: NATO Seasparrow Project Office (NSPO) USA

Phase 4 is the final phase of Project SEA 1428 and is scoped to procure a number of Evolved Sea Sparrow Missiles (ESSM) and Mk25 quad-pack canisters to increase the Navy’s war stock. The procurement of ESSM and canisters is planned over four major orders due for yearly deliveries from 2010 through to 2013. The orders are placed through the NSPO which is based in the US. The NSPO is responsible for the development and management of the ESSM program and is controlled by the NATO Seasparrow Consortium which is made up of 12 member nations including Australia.

The project is on schedule and budget. Two payments will be made during 2009-10. The first will be for the final payment of missiles ordered during 2008-09 and scheduled for delivery during 2012-13. The second payment is for the initial missiles ordered during 2009-10 and scheduled for delivery during 2013-14. No missile deliveries are scheduled for 2009-10.

The US Government, as the contract manager for NSPO, imposed a production line stoppage in 2008 on the prime contractor (Raytheon Missile Systems in the US) after a number of quality issues with the delivered ESSM. The production line restarted in January 2009 after a successful review by the US Government and NSPO.

There are two major risks to delivering the missile on time and to the required quality. The first risk is to project schedule as a result of the Raytheon Missile Systems production stoppage. This risk is being mitigated through a close working relationship between SEA 1428 and NSPO to capture any possible delay and develop mitigation options as early as possible. The second risk is that the delivered missile will still not meet the project’s quality requirements following the production restart. This risk is being mitigated by the NSPO surveillance program, which should identify and correct missile quality issues, and by periodic maintenance of the missiles at the Australian intermediate-level maintenance facility.

New Air Combat Capability

Detailed Analysis and Acquisition Planning—AIR 6000 Phase 1B

Prime Contractor: Lockheed Martin Aeronautics is contracted to the US Government for the System Development and Demonstration (SDD) and Production Sustainment and Follow-on Development (PSFD) phases of the Joint Strike Fighter (JSF) Program. Lockheed Martin is teamed with Northrop Grumman and BAE Systems for the JSF air system.

The project aims to introduce a new air combat capability that will meet Australia’s air combat needs out to 2030 and beyond. In the White Paper, the Government confirmed that it plans to equip the Air Force with around 100 JSFs.

The JSF is a fifth-generation, stealthy, multi-role fighter being developed as an international collaborative program. Three variants are being produced, with an Australian preference for the conventional take-off and landing variant.

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Funding is currently provided to undertake the collection and detailed analysis of SDD and early production information and the associated studies, risk mitigation and planning activities necessary to support Government’s procurement decision on the JSF. This phase also supports preliminary activity necessary to prepare for the acquisition of the JSF, Australian defence industry participation in the F-35 program, and Australia’s initial contributions to the PSFD phase of the program.

The AIR 6000 project office also continues to work closely with Australian industry, Lockheed Martin and its JSF industry partners and their suppliers, to improve the business case for Australian industry to win major opportunities currently on offer.

The JSF program remains a developmental project, and as such, many technical and programmatic challenges remain. Defence’s planning has therefore taken into account the risk of budget and schedule pressures on the US program and the impact of these on introducing the JSF into service in Australia.

Human Resources and Corporate Services

Improvements to the Logistics Information Systems—JP 2077 Phase 2B

ADF Deployable Logistics Systems—JP 2077 Phase 2B.2

Prime Contractor: Mincom Pty Ltd is the prime contractor for Phase 2B, and is the provider of the core software system to be known as the military integrated logistics information system.

This project will modernise and integrate Defence’s logistics information systems. The project is being delivered in multiple phases, each addressing specific capability requirements, which include supply chain, inventory control and repair and maintenance functions to support ADF capabilities in Australia and in all areas of operations. The existing core logistics system, the Standard Defence Supply System (SDSS), is based on a product developed by Mincom in the 1990s.

Phase 2 is the current phase of the project and is itself comprised of several sub-phases. Active sub-phases are:

• Phase 2B.1, which will provide new core software to replace the SDSS core system and improved financial management capability. This sub-phase commenced its acquisition activities in September 2006 and implementation of the IOC will occur in November 2009.

• Phase 2B.2, which will provide an enhanced deployable capability as well as improved in-transit visibility. Second pass approval was attained from the Government in December 2006. A contract for solution design is expected by August 2009, for delivery in the third quarter of 2010. Once suitability of the design is assessed, delivery will be contracted with initial capability expected from 2012.

A key risk for Phase 2B.1 is the scope of the business transformation required to support the enhanced capability. This risk is being mitigated by an extensive training program, rigorous testing and wide stakeholder engagement.

A key risk for Phase 2B.2 is the ability of Defence to support two significant logistics business transformation activities concurrently. Mitigation for this resource contention is the staging of the program. A further risk is the developmental nature of the Phase 2B.2 capability. Mitigation for this risk is the high degree of design and architecture work being undertaken prior to commencing system delivery.

Acquisition Projects Not Included in the top 30—Current Status Table 67 provides an update on the status of major projects reported in previous financial years. These projects dropped below the top 30 expenditure threshold in 2009-10.

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ateriel Organisation

Table 67: Current status of previously reported top 30 Projects (projects reported in the last five financial years) Project number

Financial year(s)

reported in Top 30

Approved project

expenditure $m

Cumulative expenditure

to 30 June 2009

$m

Budget estimate 2009-10

$m

Status report

Aerospace Systems Hornet Upgrade Project – Target Designation System

AIR 5376 Phase 2.4

2006-07

152 105 12

IOC achieved in June 2007, on schedule. All Litening pods and datalinks have been delivered, with service release obtained in February 2009. Minor limitations with the flight envelope will be resolved over the next 12 months. FOC is due December 2009.

P–3C Update Implementation

AIR 5276 Phase 2

2001-02 2002-03

FOC was delivered on 16 December 2004. Two aspects of the project remain outstanding.

2003-04 2004-05 2007-08

Acoustics Stage 2: Prime contractor General Dynamics – Canada - failed Factory Acceptance Testing (FAT) in December 2008. New FAT scheduled for May 2009. Radar Processor – Advanced: Prime contractor – ELTA – Israel - October 2008 review resulted in a revised delivery schedule which is being met.

908 869 5 Negotiations are underway with BAE Systems for an installation design for both elements.

Airborne JP 129 2007-08 Following termination of the contract with Boeing Australia in September 2008, Surveillance for Phase 2 2008-09 capability options are being developed for Government approval. Emphasis is Land Operations being placed on fielded systems with extensive operating experience. Defence is

157 2 - developing alternative capability options for consideration by Government. C-17 Globemaster III AIR 8000

Phase 3 2006-07 2007-08 2008-09

All four C-17 aircraft are in service with the Air Force. Initial training of Air Force personnel including pilots, loadmasters and maintenance personnel was completed in December 2008, at which time the Air Force assumed responsibility for management of ongoing training requirements. All four aircraft are operating in an air logistics support role (personnel and cargo transport) and have also operated in the high-dependency patient aero-medical evacuation role. Expansion to other roles, including air drop and air-to-air refuelling, will occur progressively in 2009-10 as specialist equipment is procured, personnel trained and airworthiness accreditation obtained. A C-17 full flight simulator is expected to be commissioned at RAAF Amberley for in-country aircrew training in 2010.

2,024 1,307 16 FOC is linked to the attainment of permanent C-17 facilities and further in-country training devices, forecast to occur by the end of 2011.

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ortfolio Budget S

tatements 2009-10

Project number

Financial year(s)

reported in Top 30

Approved project

expenditure $m


to 30 June 2009

$m


$m

Status report

Maritime Patrol and AIR 7000 2008-09 AIR 7000 Phase 2 received first pass Government approval in July 2007 to Response Aircraft System

Phase 2 participate in the P-8A Spiral 1 Cooperative Development program with the USN. The USN P-8A Spiral 1 program is the first capability upgrade for the P-8A that the Boeing Company (USA) will deliver to the USN from 2015. The cooperative development program enables Australia to participate in the development of requirements for the Spiral 1 upgrade and gain visibility of the baseline P-8A design and performance capabilities. This strategy provides an incremental approach aligned with USN program maturation and achievements. AIR 7000 Phase 2 intends to seek Government approval in 2010 to enter into a Production, Sustainment and Follow-on Development (PSFD) Memorandum of Understanding (MoU) with the USN. Project activity and expenditure during 2009-10 is based on implementing the P-8A Spiral 1 cooperative development MoU with the USN and

164 16 21 commencing the development of the PSFD MoU for later P-8A acquisition. Strategic Air Lift Capability

AIR 5216 Phase 1

2005-06 1,047 1,023 -

The capability has been delivered and accepted into service. Project closure will occur in 2009-10.

Land Systems Australian Light LAND 112 2005-06 All prime equipment has been delivered. The ASLAV Surveillance prototype is Armoured vehicles Phase 3 undergoing test and evaluation. Crew procedural trainer has been introduced into

service and a through life support contract is being established. Extensions to 692 590 6 ASLAV hangers and support facilities are being planned by Infrastructure Division.

General Service Field Vehicles - Overlander

LAND 121 Phase 2

2005-06 – Bulk Liquid Tankers - project has been completed and closed. – Heavy Recovery Vehicle - project has been completed and closed. – Land Rover Handling Upgrade - project has been completed and closed. – Mack In-Cabin Noise Reduction - in contract, due for completion in October 2010. – Unimog & Mack Gun Tractors Passenger/Cargo Restraint & Separation - all modules delivered, project due for completion by the end of 2009.

93 63 4

– Land Rover Safety Improvements - modification of the regional force surveillance and the fitted for radio variants with a personnel/cargo restraint, segregation and rollover system. The regional force surveillance component is due for completion in 2010. The fitted for radio component has been removed from the project scope due to inability to find a ‘value for money’ technical solution.

Tank Replacement Project

LAND 907 Phase 1

2005-06 2006-07 2007-08 579 430 15

The project is on schedule and within budget. All major capability platforms have been delivered and are in service. Current focus is to establish a through-life support contract, Leopard tank disposal and the acquisition of tank urban survivability kits.

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Project number

Financial year(s)

reported in Top 30

Approved project

expenditure $m


to 30 June 2009

$m


$m

Status report

Maritime Systems Anzac Ship Project SEA 1348

Phase 2 2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08 372 171 26

Contractor warranty work and the essential safety upgrade of ships to contemporary standards are being progressed during maintenance availability periods. Financial reconciliation of the original project scope for ships and related shore facilities and logistic support is being developed.

Collins Replacement Combat System

SEA 1439 Phase 4A

2003-04

2004-05

2005-06

2006-07

2007-08 457 414 12

The system has been proven in HMAS Waller, and submarines continue to be successfully modified under a schedule that is dependent on the submarine docking program.

Anzac Ship Anti-Ship Missile Defence

SEA 1448 Phase 2A

2004-05

2005-06

2006-07

2007-08 372 171 26

Production and integration of sensor hardware and combat software continues successfully. Delivery of all hardware and software continues to meet schedule and capability.

Armidale-class Patrol Boat

SEA 1444 Phase 1

2004-05

2005-06

2006-07

2007-08 533 476 6

All patrol boats are in service and engaged in operations. Project activity is focused on implementing permanent configuration changes for fuel and sewerage systems.

Ships Self Defence Capability – RAPID Acquisition

SEA 1779 Phase 1

2007-08

55 39 8

Installation in all ships (Manoora, Kanimbla and Tobruk) is nearing completion. The project is participating in the acceptance testing of the system installed in Manoora, and the rectification of ship modification requirements.

Collins Class Submarine Reliability & Sustainability

SEA 1439

Phase 3

2003-04

2004-05

2005-06

2006-07

2008-09 400 282 25

The project scope is comprised of several sub-projects which separately address a number of submarine reliability and sustainability conditions. The project competes for specialist design resources and platform availability as a lower priority than two other submarine-related projects: SEA 1439 Phase 4A and SEA 1429 Phase 2. Although this can impact schedule, modifications are progressing.

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ortfolio Budget S

tatements 2009-10

Project number

Financial year(s)

reported in Top 30

Approved project

expenditure $m


to 30 June 2009

$m


$m

Status report

Amphibious Vessels Maritime Operations Support Capability

SEA 1654 Phase 2A

2005-06 2006-07

142 135 6

Transition to sustainment occurred on 5 December 2008. Integrated logistics support rectification continues with the aim of achieving integrated logistics support and initial operational release certification in 2010. Full operational release is scheduled for the end of 2010.

Electronic Systems MILSATCOM Terrestrial Infrastructure

JP 2008 Phase 3E

2004-05 2005-06 2007-08

210 196 5

All maritime and land terminals have been delivered, the primary injection facility is in operation and the theatre broadcast software has been accepted and rolled out. The project has now commenced the systems integration and verification and validation phase. The final maritime terminal will be installed in May 2009 and the operations and support contract for the primary injection facility is anticipated to be in place by June 2009. The project remains on schedule for delivery in December 2009.

Jindalee Radar Network

JP 2025 Phase 3&4

2001-02 2003-04 2004-05 2005-06

A 46-month maintenance and support contract expired on 16 February 2007. Subsequent maintenance contracts are managed from Sustainment (Program 1.2). The residual activities on this project relate to the finalisation of the capability’s support environment. The project is also now investigating the possibility of utilising alternative power generation technology.

2006-07 1,248 1,229 7 High Frequency Modernisation

JP 2043 Phase 3A

2000-01 2001-02 2002-03 2003-04

Integration and testing of additional functionality and enhancement to the core system delivered in 2004 will continue. A revised schedule has recently been agreed between the Commonwealth and the company with a revised final systems acceptance date of July 2010.

2004-05 2005-06 2007-08 2008-09 649 368 17

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Project Financial Approved Cumulative Budget Status report number year(s) project expenditure estimate

reported expenditure to 30 June 2009-10 in Top 30 $m 2009 $m

$m Explosive Ordnance Lightweight JP 2070 2003-04 JP 2070 Phase 2 successfully achieved firings from an Anzac frigate and opened Torpedo Phase 2 2004-05 the MU 90 torpedo maintenance and integration facility in Western Australia in Replacement

2005-06 2008. The project is now transitioning the Phase 2 torpedo and system deliveries into sustainment, and executing the MU 90 torpedo test, evaluation and acceptance

2006-07 program. MU 90 surface integration is tracking well. Development of an initial contract for sustainment of the ship borne torpedo system is underway. Future activity centres on progressing the test and evaluation program and torpedo delivery. The project will fire an MU 90 Torpedo from a Adelaide Class Frigate in late 2009 and delivery of European-built prime torpedo sections are expected to be

347 214 9 completed by the end of June 2009. Explosive JP 2085 2005-06 The Statement of Work has been developed for the US Government to supply 5” 54 Ordnance Reserve Phase 1B 2006-07 Naval Projectiles and associated technical documentation under an FMS case. Stocks

2007-08 Delivery is subject to US reaching the economic order quantity prior to initiating an order with the manufacturer.

2008-09 Procurement of the Advanced Field Artillery Tactical Data System (AFATDS) was approved on 31 March 2009. Compatibility testing of the M198 Gun System configuration with Modular Charge Artillery System, the Excalibur Projectile using AFATDS and the Australian Portable Excalibur Fire Control System were successfully completed. Projected milestones in 2009-10 are: · Excalibur Project Office IOC Requirements met August 2009. · SMArt 155 Introduction Into Service completed December 2009.

216 184 18 · Excalibur Project Office FOC Requirements met December 2010.

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ortfolio Budget S

tatements 2009-10

Project Financial Approved Cumulative Budget Status report number year(s) project expenditure estimate

reported expenditure to 30 June 2009-10 in Top 30 $m 2009 $m

$m Helicopter Systems Anzac Ship SEA 1411 2001-02 The decision to cancel the Seasprite project was announced by the Government on Helicopter Phase 1 2002-03 5 March 2008. Under the negotiated mutual agreement reached between the

2003-04 Government and Kaman on 20 March 2008, and subsequent US Government approval that was obtained on 6 February 2009, ownership of the Seasprite aircraft

2004-05 and equipment was transferred to Kaman on 12 February 2009 in exchange for 2005-06 bank guarantees of $39.5m. $34m of Seasprite spares was retained for use on

2006-07 Seahawk and Black Hawk. All of the aircraft and most of the equipment for resale are now located in the US with Kaman. The objective of the Settlement Deed is to maximise the resale of the aircraft and a spares package with at least 50 per cent of the proceeds to be made to the Government. Some spares will be sold separately and the trickle flow of

1112 953 - proceeds from these has commenced.

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Program 1.2: Management of Capability Sustainment

Program 1.2 objective

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

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 of equipment and purchasing of inventory, such as explosive ordnance, fuel, stores and spare parts.


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 $5,474.1m in 2009-10 which represents 46 per cent of the DMO’s total expenses.

• The planned resource use for Program 1.2 includes:

- direct appropriation of $515.9m relating to Sustainment Service Fee

- the cost of contracted services to Defence of $4,009.3m

- support for current operations of $606.3m

- a variation to DMO Personnel and Operating Costs of $256.1m in support of new capabilities expected to enter service

- support to foreign government activities of $70.0m

- resources received free of charge from Defence ($16.5m).

As the Smart Maintenance initiative is rolled out by the DMO and the three Services, the savings it will deliver will grow progressively and are anticipated to reach in excess of $400m per year within four years and over $500m per year within the decade. These savings have been earmarked for reinvestment in current and future capabilities.

Table 68: Program 1.2: Management of Capability Sustainment

2008-09 2009-10 2010-11 2011-12 2012-13 Revised Budget Forward Forward Forward budget year 1 year 2 year 3

$'000 $’000 $'000 $'000 $'000 Annual Departmental Expenses:

Ordinary annual services (Appropriation Bill No. 1) - 515,944 527,126 545,986 565,867

Special Account Expenses: Defence Materiel Special Account 4,839,669 4,941,703 4,678,861 4,749,010 4,842,169 Expenses not requiring Appropriation in the Budget year 16,461 16,461 16,461 16,461 16,461

Total Departmental Expenses 4,856,130 5,474,108 5,222,448 5,311,457 5,424,497

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Program 1.2 deliverables • Key deliverables are specified under each Materiel Sustainment Agreement (MSA), and are

discussed below. There are currently seven MSAs under management in Program 1.2, incorporating 101 sustainment schedules.

Program 1.2 key performance indicators • Indicators are included in individual MSAs. The DMO reports to its customers against these.

Table 69: Top 20 sustainment products by forecast expenditure in 2009-10

2009-10 PBS Product Price

$m Aerospace Systems F/A-18/F Block II Super Hornet 133 P-3C/AP-3C Orion Weapons System 133 F/A-18 Hornet Weapons System 129 C-130J-30 Weapons System 111 Lead-In Fighter Hawk 127 Weapons System 96 F-111 Weapons System 87 C-17 Globemaster III 68 Explosive Ordnance Explosive Ordnance – Navy, Army, Air Force 345 Electronic Systems Wide Area Surveillance Capability 73 Helicopter Systems MRH-90 127 Armed Reconnaissance Helicopter Weapons System 107 S70B-2 Seahawk Weapons System 85 Black Hawk S70A-9 84 Land Systems B Vehicles 134 ADF Clothing and Equipment 116 Commercial Vehicle Fleet 77 Maritime Systems Fuels and Lubricants - Navy, Army, Air Force 476 Collins class submarines 329 Anzac class frigate 231 Adelaide class frigate 105 Sub-Total Top 20 Sustainment Products 3,045 Total Funds Available 4,616

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

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Sustainment Descriptions

Aerospace Systems Division

Aerospace Systems Division provides through-life support to 13 fixed wing weapons systems, which include the F/A-18 Hornet fleet, heavy air lift capability, and advanced flight simulators. Major challenges for sustainment during 2009–10 include:

• continuing establishment of a new Heavy Air Lift System Program Office at RAAF Amberley to manage the sustainment of the new C-17 Globemaster III and Multi Role Tanker Transport weapons systems

• introducing incentive-based contracts for new and existing platforms, including the AP-3C Orion and the F/A-18 Hornet

• completing the C-130J Block Upgrade Program 6.1

• maintaining F/A-18 Hornet aircraft availability during the extensive Upgrade Program

• progressing plans for the withdrawal of the F-111

• continuing support to operationally deployed platforms such as the C-130 and the AP-3C

• continuing establishment of the support arrangements for the acquisition of 24 F/A- 18F Super Hornets

• contributing to the development of acquisition and sustainment strategies for future aerospace projects including AIR 7000 maritime patrol and response capabilities, and AIR 5428 pilot training

• planning the accelerated withdrawal from service of the Caribou by December 2009

• establishing an Interim Light Transport capability (B300 King Air)

• implementing efficiency initiatives across all major systems.

Under the Smart Maintenance initiative, all major products managed by Aerospace Systems Division will be carefully scrutinised to identify possible efficiencies over the next five years. Savings freed up will be available for reinvestment in current and future capability.

Aerospace System Products

F/A -18/F Block II Super Hornet

Twenty-four Boeing F/A-18F Block II Super Hornet aircraft are being acquired to de-risk the transition to the New Air Combat Capability and maintain Australia’s air combat capability edge. The Super Hornet aircraft will be based at RAAF Amberley in south-east Queensland. Support arrangements are being established utilising services available through the FMS process via the USN, and through direct commercial contracts in Australia. The support arrangements are being progressively established to support the arrival of the first four aircraft in the second quarter of 2010.

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

Nineteen Orion aircraft together with their significant ground based training facilities will undergo a series of block upgrades to key systems over the next decade to address major system obsolescence and capability upgrades. The weapon system also faces increased deeper maintenance and obsolescence costs associated with an ageing aircraft. Some AP-3C Orion aircraft recently reached their structural safe design life, and as a result a safety-by-inspection regime of targeted additional structural inspections will be required as aircraft reach certain flying hours. An alliance arrangement has been established with BAE Systems and Australian Aerospace (known as the P3 Accord) to provide the core capability and capacity to deliver the block upgrade, major maintenance and key support services for the weapon system. Other significant support contractors include Raytheon Australia and Qantas Defence Services.

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F/A-18 Hornet Weapons System

Seventy-one F/A-18 aircraft and training systems are supported by a range of contracts and RAAF workshops. The major challenge in supporting the F/A-18 Hornet fleet continues to be maintaining aircraft availability during the extensive and complex Hornet Upgrade Program. The project office continues to implement strategies for addressing ageing aircraft and equipment issues, such as structural fatigue, corrosion and increasing spares costs. A new contracting strategy has been developed to provide deeper maintenance and modifications of the Hornet fleet. The total logistics support contract for the Hornet F-404 Engines was signed in December 2008, and the contract commenced in April 2009.

C-130J-30 Weapons System

A through-life support contract was signed in March 2009 with Australian Aerospace and major sub-contractor Lockheed Martin to perform the role of platform steward, Authorised Engineering Organisation and deeper maintenance contractor. The C-130J propulsions system is supported through a separate performance-based contract with Standard Aero. Purchase of additional spares and improvement of repair pipelines to enhance demand satisfaction performance will continue throughout 2009-10, as well as transition to the new contract in March 2010. Support to operations to assure availability of spares over the extended supply lines to deployed aircraft and remediation of wear and tear caused by the harsh operating environment experienced by deployed aircraft will continue. Support for the Enhanced Land Forces will continue to develop into a mature requirement during 2009-10. The DMO is providing project management and engineering support to the C-130J role expansion, obsolescence management and block upgrade programs.

Lead-In Fighter Hawk 127 Weapons System

Thirty-three Hawk 127 aircraft and training devices are sustained through a prime contract. This is a performance-based in-service support contract covering all support other than the operational maintenance performed by the Air Force. Major challenges arising in the future will be the ongoing eradication of asbestos items in the aircraft, and management of obsolescent and ageing training systems.

F-111 Weapons System

Eighteen F-111 aircraft and training systems are supported by three main contractors with the operational-level maintenance provided by the Air Force. The F111-G model has been withdrawn from service as planned. Existing support contracts have been realigned with the plan to withdraw the F/RF-111C aircraft in 2010.

C-17 Globemaster III

The C-17 is primarily being sustained under the USAF-led Globemaster Sustainment Partnership contract with the Boeing Company and ancillary USAF-sourced services, funded through a FMS case with the US Government.

The focus in 2009-10 will be on continuing to mature C-17 sustainment requirements, including spares provisioning and logistics support arrangements. Expansion to other roles, including further development of aero-medical evacuation, will also occur progressively in 2009-10 as specialist equipment is procured, personnel trained and airworthiness accreditation obtained. Full operational capability will be achieved when the in-country training systems (including the aircrew simulator) and permanent C-17 facilities have been established. This is not anticipated to occur before 2011.

Explosive Ordnance Division

The Explosive Ordnance Division within the DMO was established to provide a dedicated focus for the reform of explosive ordnance acquisition and sustainment outcomes. The Division consists of a small divisional element and two branches, responsible for the acquisition and sustainment of guided weapons and non-guided munitions respectively.

Current focus is on improvements to 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

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• 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 and incentives for investment in domestic manufacturing

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

Under the Smart Maintenance initiative, all major products managed by Explosive Ordnance Division will be carefully scrutinised to identify possible efficiencies over the next five years. Savings freed up will be available for reinvestment in current and future capability.

The new divisional business model developed over the past 12 months has been implemented. The business model will provide the ideal vehicle to consolidate all explosive ordnance activities occurring in other parts of the DMO and provide greater emphasis on the customers – the Navy, Army and Air Force.

During 2009-10, the Division will seek to engage resources from industry to support the management team through the reform process. A key objective to assist longer term improvements is the establishment of competency frameworks for professionalisation pathways that will guide long-term investment in the APS and ADF staff working in the explosive ordnance domain.

Explosive Ordnance Product

Explosive Ordnance —Navy, Army, Air Force

The ability to provide munitions products in the required quantities to the Navy, Army and Air Force continues to be impacted by the requirement to procure many of those munitions products in a world marketplace characterised by high demand. Price increases due to this high demand are being encountered. In an effort to reduce the supply chain risks associated with high consumption and critical items, opportunities for greater indigenous manufacturing are being actively explored. Price increases will place pressures on the sustainment budgets of the Navy, Army, and Air Force from 2009-10.

Guided weapons are maintained as a relatively stable number of assets under management, with the majority of associated activities and costs being assigned to the recertification of reliability of weapons in inventory. Relatively minor requirements for guided weapons in support of current operations have enabled the availability levels of the inventory to be maintained within allocated resources. Opportunities to improve missile availability and lower sustainment costs are being progressed in close consultation with the respective Services, industry partners and key suppliers.

Electronic Systems Division

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 are listed below:

• the numbers, capability and complexity of command support systems continue to grow as an enabler of networked operations. Sustainment authorities will continue to centralise and improve efficiencies from standardising hardware platforms for deployable networks. The logistic management of these systems will continue to improve, allowing more effective support to military operations.

• new contract arrangements for trunk communication systems have come into effect. The new contract arrangements leverage off the successful model adopted for combat radios.

• a tender for the operation, maintenance and support of the very low frequency capability at Harold E Holt has been developed and is due for release.

• in-service support of Air Traffic Control systems continues with improving levels of availability and quality of service. Engagement with Airservices Australia on cooperation and data sharing will

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continue with services and facilities shared at Perth under a contracted arrangement. Delivery of new transportable air operations towers and improved navigational aids will enhance the support of the air traffic control capability. A strategy to rationalise the management and improve the efficiency of air traffic control communications systems and navigational aids sustainment is being implemented.

• the in-service support arrangements for the Air Defence Ground Environment equipment continues with the Mobile Control and Reporting Unit, including a Tactical Air Defence Radar System, currently deployed in the Middle East Area of Operations in support of Operation Slipper. The equipment is expected to return to Australia late in 2009 with planning underway to remediate the capability during 2010-11 following the extended deployment. The roll out of Project Vigilare into the Regional Operations Centres and subsequent transition to sustainment support is being undertaken.

Under the Smart Maintenance initiative, all major products managed by Electronic Systems Division will be carefully scrutinised to identify possible efficiencies over the next five years. Savings freed up will be available for reinvestment in current and future capability.

Electronic Systems Products

Wide Area Surveillance Capability

Wide area surveillance consists of three Over The Horizon Radars. Two radars were delivered in 2003 and are based at Longreach, Queensland and Laverton, Western Australia (known as Radar 1 and Radar 2 respectively). The third radar based at Alice Springs, Northern Territory (Radar 3) was initially built by Defence as a concept technology demonstrator in the 1980s. All three radars are remotely operated from the operations centre located at Edinburgh, South Australia.

Due to the remote nature of the radars, the support concept is two turn-key support contracts with Lockheed Martin Australia Electronic Systems Pty Ltd (for Radar 1 and Radar 2) and BAE Systems Australia Ltd (for Radar 3).

‘Over The Horizon Radar’ technology is an indigenous capability built on the backbone of Defence Science and Technology Organisation research efforts and endeavours. Ongoing research into the future application of this technology is critical if Australia is to maintain its technological and capability advantage in wide area surveillance.

Due to the developmental heritage of Radar 3, it is becoming increasingly prone to obsolescence and ageing facilities issues. These issues are being managed as they arise in concert with a suite of upgrades to all three radars that are being delivered through a mix of major and minor projects.

Helicopter Systems Division

Helicopter Systems 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 to manage sustainment of the Armed Reconnaissance Helicopters and the Multi Role Helicopters have been established in Brisbane. These offices and teams provide fleet-wide engineering, repair parts, contract management for deeper level maintenance and replacement of ageing and obsolescent aircraft equipment for all of the ADF’s helicopters.

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

In 2009-10, the major factors affecting sustainment include:

• ongoing support to operationally deployed helicopters and UAV

• completion of the disposal of the Iroquois and withdrawal from service of the operational unit Kiowa helicopters

• disposal of the Super Seasprite helicopters

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• completion of the Seahawk upgrades, including rectification of corrosion, in order to increase availability

• management of ageing aircraft platforms, including the Black Hawk, Seahawk and Sea King

• maturing of the support arrangements for the Tiger Armed Reconnaissance Helicopter and Multi Role Helicopter, and transition into service of individual helicopters as they are delivered.

Under the Smart Maintenance initiative, all major products managed by Helicopter Systems Division will be carefully scrutinised to identify possible efficiencies over the next five years. Savings freed up will be available for reinvestment in current and future capability.

Helicopter System Products

Multi Role Helicopter MRH-90

Five MRH-90 helicopters have been accepted into service on schedule, with a total of 15 helicopters due for delivery by the end of 2009-10. In total, 46 aircraft will be delivered for use by the Navy and the Army by mid-2014.

The major risk to the project remains being able to increase the low rate of flying needed to train sufficient crews and complete flight testing. The contractor and the Commonwealth project team have implemented initiatives to improve aircraft reliability, provide sufficient spares and to maximise the usage of available aircraft.

These initiatives have increased the flying rate, but a further increase will be required to complete the initial training and test and evaluation activities to achieve the IOC for the Navy in 2010 and the Army in 2011.

Armed Reconnaissance Helicopter Weapons System

In June 2008, the first three ARH Tigers were deployed to 1st Aviation Regiment, Darwin. These aircraft establish the initial permanent ARH Tiger presence at Robertson Barracks in order to commence transition to operational service and final operational evaluation of the capability.

The major risk to the project is the inability to achieve the required rate of flying effort, leading to an impact on schedule and supportability which could delay aircrew training and operational test and evaluation. This risk is being managed through resolution of disputed matters with Australian Aerospace and the introduction of performance penalties in the renegotiated through-life support contract.

Spares availability is improving as a result of through-life support contract changes and improved contract performance measures. However, further supply system improvement will be required to ensure sufficient aircraft are available for key operational testing activities in the fourth quarter of 2009.

S70B-2 Seahawk Weapons System

The Seahawk Weapons System comprises 16 Sikorsky S-70B-2 Seahawk helicopters and associated mission and training simulator systems.

The Seahawk provides Anti Surface Warfare and Anti Submarine Warfare capabilities for the Navy. Based at HMAS Albatross in Nowra NSW, the Seahawk Weapons System is part of, and significantly extends the FFG Frigate sensor and weapons system, and provides a similar supplementary capability to the Anzac Frigate. The endorsed Seahawk planned Rate of Effort for 2009-10 is 3,400 hours, increasing to 3,600 hours in 2010-11.

The sustainment budget funds maintenance support for the Seahawk through a combination of contracted support, provided primarily by BAE Systems Australia and Asia Pacific Aerospace, and organic support, provided by 816 Squadron, with spares support being provided under contract with the Original Equipment Manufacturer, Sikorsky.

The sustainment budget risks for the Seahawk Weapon System are largely related to airframe corrosion and system obsolescence issues. These are being actively managed by the DMO in consultation with the Navy and through the Seahawk Capability Assurance Program.

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Black Hawk S70A-9

Thirty-four S70A-9 Black Hawk helicopters, a full flight and mission simulator, a maintenance training aid and other facilities are supported by multiple contracts. BAE Systems provides deeper maintenance support for the fleet in Townsville and Brisbane using a performance-based contract that also covers support for the Chinooks. Repairable item work is conducted through Sikorsky Australia.

Sustainment of the Army’s Black Hawk fleet has required very close management due to the high level of operational tasking, pressure on the deeper maintenance schedule and availability of spares which are also in high demand for the US Army fleet.

Selected upgrades will continue until 2010-11 to address system obsolescence to ensure operational viability is maintained until the Black Hawk is replaced under Project AIR 9000 Phases 4 and 6.

Land Systems Division

The sustainment of land systems is managed by 10 Systems Program Offices within Land Systems Division. Land Systems sustainment activity supports a diverse range of materiel, including armoured and non-armoured vehicle fleets, artillery and weapon systems, engineer plant, materiel handling equipment, soldier protection and uniforms, bulk liquid distribution, medical and dental stores, surveillance and simulation systems, and consumable stores such as combat rations. During 2009-10 these products will be managed across 31 separate MSAs.

Sustainment support to operations remains the highest priority for Land Systems Division during 2009-10. The Division provides support to forces deployed outside Australia, including the Middle East, East Timor and Solomon Islands. Land Systems Division continues to refurbish equipment returning from overseas deployments to ensure its availability for future operations.

Other significant sustainment activities include:

• continued downsizing of the commercial vehicle fleet from six to four cylinder vehicles (the target is 50 per cent of the acquisition for 2009-10)

• increased engagement with Original Equipment Manufacturers for through-life support

• continued refinement of MSAs with the Services to increase accountability with a focus on operational availability.

Under the Smart Maintenance initiative, all major products managed by Land Systems Division will be carefully scrutinised to identify possible efficiencies over the next five years. Savings freed up will be available for reinvestment in current and future capability.

Challenges for 2009-10 will include sustainment revitalisation through improvement to inventory and maintenance management. Sustainment revitalisation will focus on rationalising and balancing inventory while maintaining high operational availability of critical equipment and improving land materiel maintenance systems. These activities will contribute to greater efficiency and improve the effectiveness of land equipment.

Rapid acquisition projects are a significant component of the Land Systems Division workload in support of operations. Projects are initiated at short notice to satisfy immediate operational requirements of deployed or deploying the ADF element groups. Projects range in complexity from rifles and other weapons, materiel for Special Forces, through to all-terrain vehicles and major upgrades to the deployed Bushmaster Vehicle. In 2008-09 Land Systems Division completed five approved rapid acquisition projects at a total cost of $60.355m. The Division also completed 11 operationally urgent acquisitions at a total cost of $16.015m. In 2009-10 Land Systems Division will progress an additional 40 rapid and operationally urgent acquisitions with an approved budget of approximately $46.466m. The majority of these will be delivered in the next reporting period.

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Land System Products

B Vehicles

B Vehicles are generally unprotected Land Rovers, Mercedes Unimog 4-tonne and Mack 8-tonne trucks, and associated trailers. There are approximately 12,076 vehicles and trailers under management. A small number of motorcycles, all terrain vehicles and ceremonial vehicles are also under management. The overall budget includes logistic shortfall supplementation. This budget will provide for regional unscheduled maintenance, centrally managed repair programs and remediation of vehicles as they return from operational areas. The major risks to be mitigated are the uncertain timing of equipment returning from operations and the increasing maintenance liability due to the ageing of the fleet.

ADF Clothing and Equipment

ADF clothing includes combat, non-combat clothing and accoutrements for general duties and non-operational roles. The ADF Clothing and Personal Equipment Procurement Plan for the period 2009-13 outlines for industry the tendering activities that will establish standing offer agreements for the acquisition of combat and non-combat clothing. In addition to the plan, a key initiative in 2009 will be an open tender to establish a prime vendor for non-combat clothing based on three work packages 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.

Commercial Vehicle Fleet

The commercial vehicle fleet comprises approximately 6,100 commercial off-the-shelf vehicles and trailers. This includes a small number of vehicles that are located overseas at RMAF Butterworth, Malaysia, and on operations. The fleet ranges from passenger sedans through to heavy rigid trucks and touring coaches. The procurement of 2,263 vehicles is planned for 2009-10. The major risk to be mitigated is the declining values for used vehicles, which impacts the projected revenue target for the planned sale of 2,113 vehicles.

Maritime Systems Division

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 System Programs that are collocated regionally with the Force Element byship class, and under various forms of outsourced commercial contracts.

The major challenges for sustainment during 2009-10 include:

• implementation of efficiency savings in provision of agreed levels of sustainment

• improvement of inventory management

• improvement of submarine availability and cost of ownership by working with ASC Pty Ltd to revise the submarine support contract

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

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

• implementation of a revised major surface ship repair strategy (batching concept) to reduce costs, provide predictability of maintenance locations through long term contracts and provide industry with the ability to be more efficient

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

• management of the obsolescence of equipment and repair parts for most ship classes.

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Under the Smart Maintenance initiative, all major products managed by Maritime Systems Division will be carefully scrutinised to identify possible efficiencies over the next five years. Savings freed up will be available for reinvestment in current and future capability.

Maritime System 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 2009-10 are the revision of the procurement strategy for fuel, ongoing maintenance of fuel installations and the replenishment of fuel stocks to meet the requirements of 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 2009-10 are the improvement of the through-life support agreement to provide increased platform availability through increased industry efficiency, implementation of a 10 year maintenance and operating cycle, and 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 provide through-life materiel support and ongoing maintenance of eight platforms and associated equipment, systems and operator training facilities to provide the Navy with the capability to meet the operational requirements of the Joint Operations Command and frigate availability constraints of the Fleet Activity Schedule. Ship repair and equipment maintenance is contracted to industry through the ship repair panel Agreement or through industry partners to the Anzac Ship Integrated Materiel Support Program Alliance.

The planned outcome for 2009-10 is the implementation of efficiency reforms while providing ongoing sustainment of materiel capability to meet the Navy’s requirements.

Adelaide class frigate

The support objective is to provide through-life materiel support and ongoing maintenance of four platforms and associated equipment, systems and operator training facilities to provide the Navy with the capability to meet the operational requirements of the Joint Operations Command and frigate availability constraints of the Fleet Activity Schedule. Ship repair and equipment maintenance is contracted to industry through the ship repair panel agreement.

The planned outcome for 2009-10 is the implementation of efficiency reforms while providing ongoing sustainment of materiel capability and continuing upgrades to capability.

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Program 1.3: Provision of Policy Advice and Management Services

Program 1.3 objective The DMO will meet Ministerial, Government, Defence and DMO expectations and timeframes for the provision of policy, advice and support.


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 Government, and the corporate functions in support of the DMO’s business activities.

Planned resource use for Program 1.3 is $104.7m in 2009-10, representing one per cent of the DMO’s total expenses.

The planned resource use for Program 1.3 includes:

• direct appropriation of $92.3m relating to policy advice and management services

• resources received free of charge from Defence and ANAO ($7.1m)

• other revenue ($5.3m).

The expenses relating to this program show an increasing trend until 2011-12 and then decrease in 2012-13, primarily reflecting the Government decisions relating to this program.

Table 70: Program 1.3: Provision of Policy Advice and Mangement Services

2008-09 2009-10 2010-11 2011-12 2012-13 Revised Budget Forward Forward Forward budget year 1 year 2 year 3

$’000 Annual Departmental Expenses:

$’000 $’000 $’000 $’000

Ordinary annual services (Appropriation Bill No. 1) 94,960 92,341 90,922 92,419 83,071

Special Account Expenses: Defence Materiel Special Account 1,002 5,301 10,657 13,789 14,598 Expenses not requiring Appropriation in the Budget year

Total Departmental Expenses 7,053 103,015

7,053 104,695

7,053 108,632

7,053 113,261

7,053 104,722

Program 1.3 deliverables • This program delivers specialist legal and procurement contracting policy, acquisition and

sustainment and advice to support the Government and Defence, and industry engagement. More detail on specific deliverables is provided in the text below.

Program 1.3 key performance indicators • The DMO meets 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 advice for Defence and the DMO

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

• corporate governance and reporting to meet the Government’s requirements.

The Kinnaird Review and, more recently, the Mortimer Review provide key drivers for Defence reforms in procurement and contracting. As the domain policy owner for procurement in Defence, the

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DMO, through the Office of Special Counsel, has initiated a drive towards professionalisation of the procurement and contracting workforce as a whole.

Other major procurement policy initiatives for 2009-10 include:

• updating the Defence Procurement Policy Manual (DPPM), related procurement guidance, the ASDEFCON contracting templates and a range of policy related reviews for consistency with broader Commonwealth legislative and policy changes and to reflect better industry engagement on contracting issues

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

• improving internal stakeholder consultation

• establishing closer engagement with industry.

The Government seeks a sustainable and capable domestic industry focussed on cost effective support of the key military capabilities of the ADF, while at the same time maximising the opportunities for Australian defence industry. To achieve this, performance outcomes for 2009-10 include delivering the industry outcomes framed by the White Paper and the next Defence Capability Plan. The DMO will measure the level of expenditure with local contractors to understand the achievement against the Government’s policy of ensuring as much of the defence budget as possible is spent in Australia. Programs to improve Australian defence industry productivity include the modified Skilling Australian Defence Industry initiative and extension program and the centres of excellence for specific industry sectors. Broader savings developed as a result of the Strategic Reform Program will require industry productivity gains as well as reshaping of defence demand. Workforce participation in the defence industry sector will continue to be improved by ongoing execution of the recommendations of the Joint Defence and Industry Training Task Force including initiatives with specific focus on taking advantage of downturns in other industry sectors.

In addition, to provide industry with specific direction on priorities, the DMO will monitor the commercial health of companies who have Priority Industry Capabilities embedded in their business. A centre of excellence for systems integration will be established.

Defence acquisition, sustainment and services budgets will include participation by Australian companies through the Australian Industry Capability program and the new Global Supply Chain Program. Australian companies can expect to win work where they are competitive and offer value for money. The expansion of e-portal capabilities and supporting data sources will be a key supporting measure for global and local industry involvement in Defence programs.

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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 2009-10. 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 Financial Management and Accountability Act 1997 or under separate enabling legislation. Table 71 shows the expected additions (receipts) and reductions (payments) for each account used by the DMO.

Table 71: Estimates of Special Account cash flows and balances Opening

Receipts 2009-10 2008-09

$'000

Payments 2009-10 2008-09

$'000

Adjustments 2009-10 2008-09

$'000

Closing balance 2009-10 2008-09

$'000

balance 2009-10 2008-09

Outcome $'000 Defence Materiel Special Account(D) 1 927,341 12,465,613 12,580,906 - 812,048

9,889,495 9,950,016 - 927,341 987,862

Other Trust Moneys 1 Special Account - Defence Materiel Organisation(T) 364 380 380 - 364

694 370 700 - 364 Total special accounts

2009-10 Budget estimate 927,705 12,465,993 12,581,286 - 812,412

Total special accounts 2008-09 estimate actual 988,556 9,889,865 9,950,716 - 927,705

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

3.1.2 AUSTRALIAN GOVERNMENT INDIGENOUS EXPENDITURE

The 2009-10 Australian Government Indigenous Statement is not applicable because the DMO has no Indigenous-specific expenses.

3.2 Budgeted Financial Statements

3.2.1 ANALYSIS OF BUDGETED FINANCIAL STATEMENTS

The DMO’s 2009-10 budget and forward estimates incorporate funding required to support approved activities including future activities associated with the Defence Capability Plan and sustainment support and current ADF activities.

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Income Statement

The DMO is budgeting for a break-even operating result for 2009-10, with total income and expenses of $11,850.7m. Of this amount, the DMO will earn $10,925.2m (92.2 per cent) from Defence, $851.1m (7.2 per cent) through direct appropriation, and $74.4m (0.6 per cent) from other sources (including $70.0m from foreign governments). The DMO’s operating costs, employee and suppliers reflect increases in Defence requirements and programmed savings contributing towards the Defence Strategic Reform Program.

In 2008-09, the service fee representing employee and supplier expenses for Programs 1.1 and 1.2 was received from Defence. From 2009-10 onwards, the service fee will be directly appropriated to the DMO by the Government. The service fee is fully recognised in the financial year.

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

The income for 2009-10 is expected to be $2,460.7m higher than the 2008-09 estimated actual. The increase is mainly the result of the increase in program activities as follows:

• Program 1.1 (Management of Capability Acquisition) $1,841.0m

• Program 1.2 (Management of Capability Sustainment) $618.0m

• Program 1.3 (Provision of Policy Advice and Management Services) $1.7m.

Balance Sheet The Unearned Revenue (other payables) is expected to reduce by $123.6m from 2008-09 for cash flow primarily associated from major capital acquisitions delayed in prior years. This decrease is offset by a reduction in appropriation receivable.

With the exception of employee benefits, which are expected to increase consistent with salary growth, other assets and liability balances are expected to remain relatively consistent over the forward years.

Statement of Cash Flows The cash flows are consistent with the income statement and movement in assets and liabilities as described above.

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3.2.3 BUDGETED FINANCIAL STATEMENTS TABLES

Table 72: Budgeted DMO departmental comprehensive income statement (for the period ended 30 June)[1]

Estimated Budget estimate 2009-10

$'000

Forward estimate 2010-11

$'000


$'000


$'000

actual 2008-09

$'000 EXPENSES Employee benefits 431,956 452,930 462,715 466,426 476,951 Supplier 8,954,250 11,394,720 11,734,691 11,637,241 10,317,689 Depreciation and amortisation 3,795 3,049 1,482 642 642 Total expenses 9,390,001 11,850,699 12,198,888 12,104,309 10,795,282

LESS: OWN-SOURCE INCOME Revenue

9,185,403 10,889,979 11,223,142 11,099,331 9,770,415 70,000 70,000 70,000 70,000 70,000

Sale of goods and rendering of services

Other revenue Total revenue 9,255,403 10,959,979 11,293,142 11,169,331 9,840,415

Gains 39,638 39,638 39,638 39,638 39,638 Other gains

Total gains Total own-source income

39,638 39,638 39,638 39,638 39,638 9,295,041 10,999,617 11,332,780 11,208,969 9,880,053

Net cost of (contribution by) services 94,960 851,082 866,108 895,340 915,229

94,960 851,082 866,108 895,340 915,229 Appropriation revenue Surplus (Deficit) - - - - -

Note 1. Prepared on Australian Accounting Standards basis.

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Table 73: Budgeted DMO departmental balance sheet (as at 30 June)[1]

Estimated Budget estimate 2009-10

$'000


$'000


$'000


$'000

actual 2008-09

$'000 ASSETS Financial assets

33,119 32,119 32,119 976,127 861,834 747,721

32,119 569,475

32,119 576,311

Cash and equivalents Trade and other Receivables

Total financial assets 1,009,246 893,953 779,840 601,594 608,430

Non-financial assets 10,274 10,274 10,274

5,315 5,315 5,315 1,377,830 1,377,830 1,377,830

10,274 5,315

1,377,830

10,274 5,315

1,377,830

Infrastructure, plant and equipment Intangibles Other

Total non-financial assets 1,393,419 1,393,419 1,393,419 1,393,419 1,393,419 Assets held for sale

Total assets 2,402,665 2,287,372 2,173,259 1,995,013 2,001,849

LIABILITIES Provisions

161,743 170,080 178,597 177,294 184,130 Employees Total provisions 161,743 170,080 178,597 177,294 184,130

Payables 1,142,323 1,142,323 1,142,323

871,435 747,805 625,175 1,142,323

448,232 1,142,323

448,232 Suppliers Other

Total payables 2,013,758 1,890,128 1,767,498 1,590,555 1,590,555 Total liabilities 2,175,501 2,060,208 1,946,095 1,767,849 1,774,685 Net assets 227,164 227,164 227,164 227,164 227,164

EQUITY[2]

Parent entity interest 141,724 85,440

141,724 85,440

141,724 85,440

141,724 85,440

Contributed equity 141,724 Retained surpluses or accumulated deficits 85,440

Total parent entity interest 227,164 227,164 227,164 227,164 227,164 Total equity 227,164 227,164 227,164 227,164 227,164

1,827,567 459,805

1,830,208 230,000

1,713,454 459,805

1,750,290 195,805

1,535,208 459,805

1,622,698 145,151

1,542,044 459,805

1,628,873 145,812

Current assets 1,942,860 Non-current assets 459,805 Current liabilities Non-current liabilities

1,911,004 264,497

Notes 1. Prepared on Australian Accounting Standards basis. 2. ‘Equity’ is the residual interest in assets after deduction of liabilities.

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Table 74: Budgeted DMO departmental statement of cash flows (for the period ended 30 June) Estimated Budget

estimate 2009-10

$'000


$'000


$'000


$'000

actual 2008-09

$'000 OPERATING ACTIVITIES Cash received

9,104,216 10,880,642 11,214,625 94,960 851,082 866,108

7,000 7,000 7,000 661,840 778,182 801,480 90,000 70,000 70,000

11,100,634 895,340

7,000 794,802 70,000

9,763,579 915,229

7,000 704,371 70,000

Goods and services Appropriations Interest GST Other

Total cash received 9,958,016 12,586,906 12,959,213

420,677 444,593 454,198 8,914,612 11,355,082 11,695,053

610,932 778,182 801,480 7,000 7,000 7,000

12,867,776

467,729 11,597,603

794,802 7,000

11,460,179

470,115 10,278,051

704,371 7,000

Cash used Employees Suppliers GST Other

Total cash used 9,953,221 12,584,857 12,957,731 12,867,134 11,459,537 Net cash from or (used by)

operating activities 4,795 2,049 1,482 642 642

INVESTING ACTIVITIES Cash used

Purchase of property, plant 3,795 3,049 1,482 642 642and equipment

Total cash used 3,795 3,049 1,482 642 642 Net cash from or (used by) investing activities -3,795 -3,049 -1,482 -642 -642

Net increase or (decrease) in cash held 1,000 -1,000 - - -Cash at the beginning of

33,119 32,119 32,119 32,119the reporting period 32,119 Cash at the end of the

reporting period 33,119 32,119 32,119 32,119 32,119

Table 75: DMO Departmental statement of changes in equity—summary of movement (Budget year 2009-10)

Retained Asset Other Contributed Total earnings revaluation reserves equity/ equity

reserve capital

Opening balance as at 1 July 2009 $'000 $'000 $'000 $'000 $'000

Balance carried forward from previous period 85,440 - - 141,724 227,164

Adjustment for changes in accounting policies - - -

Adjusted opening balance 85,440 - 141,724 227,164

Surplus (deficit) for the period - - -

Total income and expenses recognised directly in equity - - -

Estimated closing balance as at 30 June 2010 85,440 - - 141,724 227,164

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Table 76: DMO Departmental capital budget statement Estimated Budget Forward Forward Forward

estimate estimate estimate estimate actual 2009-10 2010-11 2011-12 2012-13 2008-09

$'000 $'000 $'000 $'000 $'000

ACQUISITION OF NON-FINANCIAL ASSETS

3,795 3,049 1,482 642 642[1] Funded internally from departmental resourcesTOTAL 3,795 3,049 1,482 642 642

Note 1. Includes the following sources of funding:

-annual and prior year appropriations -donations and contributions -gifts -finance leases -internally developed assets -s31 relevant agency receipts -proceeds from the sale of assets

Table 77: Statement of Asset Movements – DMO Departmental Asset Category

Other Intangibles Total infrastructure,

plant and equipment

$'000 $'000 $'000 As at 1 July 2009 Gross book value 23,490 28,692 52,182 Accumulated depreciation/amortisation 13,216 23,377 36,593 Opening net book balance 10,274 5,315 15,589

CAPITAL ASSET ADDITIONS

Estimated expenditure on new or replacement assets By purchase or internally developed 1,487 1,562 3,049 Acquisition of entities or operations (including restructuring) sub-total 1,487 1,562 3,049

Other movements Depreciation/amortisation expense 1,487 1,562 3,049

As at 30 June 2010 Gross book value 24,977 30,254 55,231 Accumulated depreciation/amortisation 14,703 24,939 39,642 Closing net book balance 10,274 5,315 15,589

3.2.4 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 statements is to round amounts to the nearest $’000.

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DMO Departmental Revenue Appropriation Revenue 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. Service fee, whether directly appropriated (from 2009-10) or received from Defence (till 2008-09), is a fixed amount and is 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

Employees 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. This is reported as part of suppliers expenses.

Suppliers

This includes payments to suppliers for goods and services used in providing the 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, 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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