Defence calls for private sector reinforcements to lift its negotiating skills
On the front line : Private sector workers will be used by the Defence Materiel Organisation to help negotiate contracts.
Defence Force mandarins are calling for private sector help after admitting the organisation lacks the skills and ‘‘general business acumen’’ to prudently negotiate billion dollar contracts with America’s military-industrial complex.
The move by the Defence Materiel Organisation comes after the latest official review of its major projects found that they were running 32 months behind schedule on average.
Of 29 major projects worth $47.3 billion, 18 have ‘‘experienced schedule slippage’’, the Australian National Audit Office said.
Cause for concern: Keeping the Collins class submarines afloat costs $500 million a year.
It also noted that while DMO was confident 91 per cent of projects would be delivered on time, the ANAO found this was ‘‘in some cases overly optimistic’’.
Defence was unable to respond to questions by deadline.
DMO this month called for experienced private sector negotiators to tender for a spot on new ‘‘negotiation cell’’ that would help bureaucrats at the negotiating table get better contracts for the Australian government when buying air, land and sea defence equipment.
DMO’s chief executive, Warren King, is quoted in tender material saying ‘‘people in DMO do not have a good enough business acumen to really understand what’s being negotiated and the challenges for industry’’.
At a national security lecture in late February Mr King said a recent study found DMO’s major project cost over-runs were less than in the private sector, and delays were comparable, but DMO was worse at delivering small projects. However, it also noted staff were out-skilled at the negotiating table.
‘‘What we found is that industry bring their very best negotiators to the table. We didn’t necessarily do so. If you look at companies, big American companies, the money that their commercial people earn, the sort of skills and expertise they can bring into the company to win that deal - remember we are talking about deals of three, four, five billion dollars – we do need to have good negotiating horsepower on our side, so we are trying to build that up,’’ he said.
He also suggested more public-private partnerships so companies would have ‘‘skin in the game’’ with penalties for late or non-delivery.
Admiral Chris Ritchie, the recently retired chairman of the Australian Submarine Corporation, which built the Collins-class submarine fleet, and the former chief of the Navy, said a 2007 review found that ‘‘people in Defence didn’t have bottom line responsibility in a profit or loss sense for what they did, and that breeds a different kind of management structure’’.
‘‘They need to have more commercially experienced people on staff.’’
Current projects of concern include the $3.6 billion purchase of 46 multi-role helicopters from an Australian subsidiary of European defence giant EADS to replace the Black Hawk and Sea King fleet.
The project was officially flagged as troubled in November 2011 and a report released by DMO in January showed it has fallen behind schedule due to ‘‘reduced aircraft acceptances due to technical deficiencies and contractual non-compliances as well as delays in other areas of the project’’.
Sustainment of the Navy’s six Collins Class submarines, which costs $500 million a year, has been on the government’s projects of concern list since 2008.
The $12 billion Joint Strike Fighter project has also suffered delays but is not listed as a project of concern because it still considered to be in development.
Australia agreed to buy 100 F-35 jets in 2002, with the deadline fast approaching to deliver the first two aircraft in 2014–15.DMO signs about 100 contracts a day and has an annual budget of $8 billion, about 37 per cent of the Defence budget. Its purchases range from underpants for soldiers to airplanes and warships.
The Defence Department plans to grant private sector negotiators the same access to internal information as it does to its own staff.
At an industry briefing about the tender, a spokesperson said intellectual property and on-going maintenance were as important as price when negotiating contracts. It also wanted help training executives, and for private sector negotiators to remain involved for the life of a project.
with Peter Cai