defence materiel organisation agency resources and planned

DEFENCE MATERIEL ORGANISATION

AGENCY RESOURCES AND PLANNED PERFORMANCE

Section 1: DMO Overview and Resources

1.1 Strategic Direction Statement1.2 DMO Resource Statement

Section 2: Outcomes and Planned Performance

2.1 Outcomes and Performance Information

Section 3: Explanatory Tables and Budgeted Financial Statements

3.1 Explanatory Tables3.2 Budgeted Financial Statements

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DEFENCE MATERIEL ORGANISATION

Section 1: Agency Overview and Resources

1.1 Strategic Direction StatementThe Defence Materiel Organisation (DMO) undertakes acquisition and sustainment activities in direct support of Australian Defence Force (ADF) operations, predominantly using Operational Procurement procedures. The DMO also undertakes routine sustainment of deployed equipment and fleets, provision of stock against operational demands, and the kitting of forces, individuals and groups, as part of pre-deployment preparation.

In 2011-12, the key priorities for the DMO will be:

• continuing support to ADF operations

• achieving the SRP’s targets for the DMO by continuing to:

- work with key customers (Navy, Army and Air Force) to reduce the cost of ownership of major Defence military fleets and commodities

- consult and engage with industry to jointly deliver savings and efficiencies

- reform internal functions to deliver savings and efficiencies

• improving performance on procurement and sustainment

• delivering the approved materiel elements of Defence Capability Plan (DCP) projects on time and on budget

• continuing implementation of the reforms resulting from the Defence Procurement and Sustainment Review (the Mortimer Review) and measuring outcomes.

The Smart Sustainment Stream is a joint reform initiative between the DMO, Defence and Defence industry suppliers. The Smart Sustainment Stream consists of reforms in three disciplines:

• maintenance reforms that consider the way fleets are operated, how they are supported and maintained, current cost drivers and what changes can be made to deliver capability at a lower cost without impacting safety

• inventory reforms that consider stock holdings, improved stock target setting and a risk weighted approach to inventory management

• non-Equipment Procurement reforms that consider changes to demand, including the way fleets are operated, improved governance arrangements, the removal of waste, reduced duplication in requirements between Defence Groups and Services and smarter procurement practices to deliver savings in fuel, clothing and explosive ordnance.

These reforms are expected to deliver gross savings of $5.5b in accordance with Smart Sustainment savings targets to reinvest in new capability for the ADF. These savings will be achieved by reviewing all aspects of the sustainment business in partnership with the Capability Managers and Industry. The DMO will take an end-to-end view of support to the military capability and use proven techniques to raise productivity and remove waste.

The goal is a better equipped and prepared ADF at a lower cost. Success in implementing the Smart Sustainment Stream will be measured against a triple bottom-line of capability, financial and cultural targets. Program success will free up resources—both people and dollars—to redirect to other priorities. Sustainment savings will not be made at the expense of agreed capability levels, quality or safety.

The Smart Sustainment Stream will continue to build momentum in 2011-12. Industry has been engaged and as a result initiatives have been developed with a number of companies to 'seed' new sustainment reform ideas. Industry engagement will continue to be developed during 2011-12, leveraging off industry experience in supporting reform overseas. DMO staff continue to be a major source of new ideas and innovative ways of delivering sustainment services to the ADF. In addition to further

Defence Portfolio Budget Statements 2011-12

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engagement with industry and the involvement of DMO staff, demand management is being reviewed and reformed by Capability Managers.

The DMO continues to expand the functions proposed in the the Mortimer Review to assist projects and improve project outcomes. The DMO is actively enhancing and expanding the Gate Review program, through both an increase in the level of independent review for the projects and a capacity increase to allow review of all major projects at least once a year.

There is also development of supporting processes such as an Early Indicators and Warnings system, which is intended to provide early identification of projects that may require a deeper review. The Gate Review process has also been effectively used as the diagnostic review for potential Projects of Concern.

The DMO's engagement in the early phases of the capability lifecycle is critical. Decisions on contracting methods, acquisition strategy and template selection can be key factors in project success. 2011-12 will see a continued focus on reviewing and updating Defence's contracting documentation to ensure that we have suitable templates that cover the entire risk spectrum of procurement activity. This work, along with other procurement and contracting reforms, has been and will continue to be undertaken in consultation with industry.

Defence M

ateriel Organisation

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Figure 4: The DMO organisational structure as at 3 May 2011


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1.2 DMO Resourcing

RESOURCING FOR 2011-12

The total net resourcing available to the DMO is $11,745.6m. The majority of the total resourcing is provided by Defence as an initial or anticipated payment of $10,099.5m in 2011-12 for the procurement of equipment and the provision of sustainment services to the ADF. The remaining amount constitutes an estimated special account opening balance of $660.9m relating in the main to work yet to be performed on behalf of Defence from previous years, an appropriation receipt of $929.2m from the Government for the payment of DMO's workforce and operating expenses, and non-appropriation receipts of $56.0m for services for non ADF customers.

The DMO's total income and expense estimate in 2011-12 is $11,127.0m which consists of $5,326.4m for the procurement of equipment, $5,684.6m for the estimated cost for sustainment of existing capability and support to operations and $116.0m for the provision of Australian Defence Industry programs and management services.

The total expense estimate in 2011-12 represents an increase of $1,208.6m compared with the estimated expenses for 2010-11, reflecting estimated cash flow for acquisition milestones and sustainment (including operations) as well as new approvals and new work anticipated to be transferred to DMO for delivery during 2011-12.

The main drivers for this increase are:

• increased funding for sustainment of $550.4m, reflecting new platforms or capabilities having entered service and increases to existing products over and above the 2010-11 estimates

• further funding for acquisition of capital equipment of $336.2m, largely reflecting increases for projects yet to be approved and transferred to the DMO for delivery

• higher anticipated workforce and operating expenses of $157.2m, largely reflecting the expectation of fully achieving workforce allocation for both APS and military levels along with Industry programs

• increased funding for support of ADF Operations of $84.8m

• higher Net Personnel and Operating Cost provisions held by Defence of $77.7m

In comparison to the 2011-12 estimates contained in the Portfolio Additional Estimates Statements 2010-11, there has been an increase in the DMO's income and expenses estimate of $323.3m primarily as a result of:

• supplementation for the support of ADF operations of $235.8m

• new funding for contracted services (sustainment) of $210.2m

• reprogramming of the cash flow for the Approved Major Capital Equipment Program of $198.6m

• reduction due to foreign exchange gain hand back of $196.3m

• reduction of the Net Personnel and Operating Costs provision held by Defence of $91.7m

• other reductions in major capital investment of $29.6m.


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DMO RESOURCE STATEMENT

Table 80 shows the total resources from all sources to support the delivery of the DMO Outcome.

Table 80: The DMO Resource Statement budget estimates for 2011-12 as at Budget May 2011

Notes1. Appropriation Bill (No.1) 2011-12.2. Estimated adjusted balance carried from previous year.3. Estimated opening balance for special accounts (less 'Special Public Money' held in accounts like Services for Other Entities and Trust Moneys

Special accounts). For further information on special accounts see Table 93.4. Direct appropriation for Workforce and Operating Expenses.5. Appropriation receipts from the Department of Defence credited to DMO's special accounts.Reader note: All figures are GST exclusive.

Table 81: Third Party Payments from and on behalf of other agencies

Note1. 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.

Es tim ate Propos ed Total Actualof prior + at Budge t es tim ate available

ye ar am ounts appropriation available in

2011-12 2011-12 2011-12 2010-11$'000 $'000 $'000 $'000

Ordinary annual s e rvice s [1]

De partm e ntal appropriationPrior year departmental appropriation[2] 660,931 - 660,931 501,560Departmental appropriation - 929,201 929,201 847,282Total 660,931 929,201 1,590,132 1,348,842

Total ordinary annual se rvices A 660,931 929,201 1,590,132 1,348,842

Special AccountsOpening balance[3] 660,931 - 660,931 501,560Appropriation receipts [4] - 929,201 929,201 847,282Appropriation receipts - other agencies[5] - 10,099,491 10,099,491 9,263,418Non-appropriation receipts to Special Accounts - 56,012 56,012 173,842

Total Special Account B 660,931 11,084,704 11,745,635 10,786,102

Total re sourcingA+B 1,321,862 12,013,905 13,335,767 12,134,944

Less appropriations draw n f romannual or special appropriations aboveand credited to special accountsand/or CAC Act bodies through annual appropriations 660,931 929,201 1,590,132 1,348,842

Total ne t res ourcing for DM O 660,931 11,084,704 11,745,635 10,786,102

2011-12 2010-11$'000 $'000

Receipts received f rom the Department of Defence for the provisionof goods and services 10,099,491 9,263,418

Payments made to other agencies for the provision of services(disclosed above)[1] 440,329 386,321


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DMO BUDGET MEASURES

Budget measures relating to the DMO are detailed in Budget Paper No. 2 Budget Measures 2011-12 and are summarised in Table 82.

Table 82: DMO 2011-12 Budget Measures

Program 2010-11 2011-12 2012-13 2013-14 2014-15$'000 $'000 $'000 $'000 $'000

Expense measuresEfficiency Dividend - 1.3

- -533 -996 -1,238 -1,537Total expense measures - -533 -996 -1,238 -1,537in the rate

temporary increase


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

Figure 5: Contributions to outcomes and programs

The outcome is described in Section 2.1 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.


Total Price of Programs: $11,127.047m

Total Departmental Appropriation: $929.201m

Administered Appropriation: Nil

Outcome 1

Contributing to the preparedness of Australian Defence Organisation through acquisition and

through-life support ofmilitary equipment and supplies

Total Price: $11,127.047m

Total Departmental Outcome Appropriation: $929.201m

Program 1.2

Management of Capability Sustainment


Total Departmental Program Appropriation: $597.331m

Program 1.1

Management of Capability Acquisition



Program 1.3

Provision of Policy Advice and Management Services

Total Price: $116.042m



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2.1 DMO Outcomes and Performance Information

OUTCOME 1 STRATEGY

The DMO is responsible for the acquisition and sustainment of the materiel element of operating capability for the ADF. Over 2011-12 the DMO will continue to enhance procurement and sustainment outcomes through early identification and management of schedule risk, continuing pursuit of efficiencies through standardisation and rationalisation of business processes, and building of technical capability.

The DMO, in meeting its contribution to delivery of the Government's agreed capability, operates in some of the most complex and technologically challenging sectors of the Australian economy which are inherently high risk. The DMO actively engages with the Capability Managers to define requirements/specifications for capability and negotiation of appropriate commercial arrangements with industry to deliver against requirements. The introduction of Project Directives by Defence in 2011, as an outcome of the Mortimer Review, will provide greater clarity in the capability planning process by articulating the respective roles of Defence Groups, the Services, and the DMO in delivering their allocated elements of projects. This builds on the prior DMO initiative to introduce Project Manager Charters and thereby clarify the assignment of their accountability.

Within this context the DMO is revising the Materiel Acquisition Agreements (MAAs) to include the schedule milestones of Initial Materiel Release (IMR) and Final Materiel Release (FMR), which recognise the delivery to and acceptance of the materiel system by the Capability Manager. Full integration of IMR and FMR across DMO business policy and processes will be finalised by December 2012.

STRATEGIC REFORM PROGRAM

In this Strategic Reform Program (SRP) environment, any requirement or constraint that drives unacceptable levels of cost or risk must be identified early and challenged. To better anticipate and mitigate risks and improve consideration of support requirements early in the life cycle the DMO is introducing, in conjunction with Defence, improved guidance for the development of acquisition strategies. The Acquisition and Support Implementation Strategy is intended to promote strategic planning throughout the capability lifecycle.

The DMO continues to manage risk and to improve schedule management in 2011-12 through:

• ongoing intensive training and development of specialist schedulers (this program started in 2008 and by December 2011 it will have produced 70 qualified schedulers)

• more objective and rigorous metrics-based management of project schedules

• greater scrutiny and analysis of the cost basis of Estimates prior to Government approval at second pass

• close management of the Projects of Concern and reporting of projects in the Major Projects Report

• analysis of risks and implementation of mitigating action through the Gate Review process

• targeted use of the Schedule Compliance Risk Assessment Method, which facilitates identification and remediation of root causes of schedule slippage.

Over 2011-12, the DMO will enhance its use of performance metrics to improve project and business management. In 2009-10, the DMO commenced a program to simplify corporate level reporting and to provide more succinct and focussed metrics to better support decision making. Implementation of the

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


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majority of this work is scheduled to occur during 2011-12 and will involve implementation of a standard set of metrics to inform routine reporting and provide clearer triggers for early intervention.

Continued standardisation and reform of the DMO's internal policy, processes, systems and tools will remain a focus. This will include the application of business improvement techniques, such as the Lean approach, to reduce complexity and to eliminate waste and inefficiency from acquisition, sustainment and corporate support processes. Along with rationalising the reporting and compliance requirements, this will release resources for higher value work.

The current standardisation focus is on three key areas. The first is the streamlining of DMO processes and their interaction with regulatory requirements operating under the three ADF Technical Regulatory Frameworks to assist the rationalisation of information systems and to reduce training and assurance overheads. The SRP priority to achieve savings and productivity improvements has emphasised the need for standardisation of sustainment management. The DMO intends to create a Sustainment Management job family responsible for DMO-wide sustainment business integration and improvement. Concurrently the DMO is establishing a standardised sustainment business model. Lastly, the ongoing standardisation and simplification of the DMO's contracting documentation is targeted towards addressing procurement risks, increasing productivity and contractor performance levels, and reducing the cost of ownership.

The support of complex and technically challenging projects and in-service equipment has highlighted the need for the DMO to increase its engineering and technical capability across both acquisition and sustainment. In pursuit of this outcome, the DMO is improving its engineering and logistics policy, practices and management systems, including the disciplined application of Systems Engineering, safety engineering and sustainable environmental management practices, and progressing inventory management and supply chain reform.

To meet its demand for engineers and skilled logisticians, in 2011-12 the DMO will maintain its recruitment of graduate engineers, double its annual sponsorship of technical and logistics trainees through Technical and Further Education courses (from 16 in 2011 to 30), and initiate an intensive logistics development program to provide acquisition and sustainment logistics specialists.

AMPHIBIOUS CAPABILITY

In association with the Navy, the DMO will continue to address the causal factors that led to the recent unavailability of the ADF's amphibious ships. Over 2011-12, as a matter of priority DMO will apply resources to commence delivery on the agreed recommendations from the Review into Amphibious and Afloat Ship Repair and Maintenance Practices (Rizzo Review) . The Rizzo Review is due to report to the Minister for Defence in June 2011. The DMO is progressing the purchase of the 'Largs Bay' vessel from the United Kingdom to provide urgently required contingency amphibious capability. It is expected that 'Largs Bay' will be available by the end of 2011 and fully operational by mid-2012.


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OUTCOME EXPENSES AND RESOURCES STATEMENT

Table 83 provides an overview of the total expenses for Outcome 1 by program.

Table 83: Budgeted Expenses and Resources for Outcome 1

Notes1. The estimated expenses for 2011-12 reflects the delivery of programs.2. Average staffing levels do not include military staff posted to DMO, as military staff remain employees of Defence and are included in its staffing

numbers.

2010-11 2011-12Estimated Estimated

actual expenses[1]

expenses$'000 $'000

Program 1.1: Management of Capability AcquisitionDepartmental expenses

Departmental appropriation 186,477 227,399Special Accounts 4,753,232 5,089,454Expenses not requiring appropriation in the Budget year 9,295 9,527

Total for Program 1.1 4,949,004 5,326,380

Program 1.2: Management of Capability SustainmentDepartmental expenses


Total for Program 1.2 4,878,690 5,684,625

Program 1.3: Provision of Policy Advice and ManagementServices

Departmental expensesDepartmental appropriation 79,367 104,471Special Accounts 1,025 1,015Expenses not requiring appropriation in the Budget year 10,354 10,556

Total for Program 1.3 90,746 116,042

Outcome 1 Totals by appropriation typeDepartmental expenses


Total expenses for Outcome 1 9,918,440 11,127,047

2010-11 2011-12Average Staffing Level (number)[2] 5,510 5,647

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


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CONTRIBUTIONS TO OUTCOME 1

Table 84: Program 1.1 Management of Capability Acquisition

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 Materiel Acquisition Agreement (MAA).

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

Program 1.1 Expenses

The cost of Program 1.1 provides for estimated expenditure on acquisition of specialist military and associated equipment for the ADF. This covers all the DMO’s 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 an estimate for the unapproved major and minor projects that are expected to be approved and transferred from Defence during that year.

The planned resource use for Program 1.1 is $5,326.4m in 2011-12 which represents 48 per cent of the DMO's total expenses.

The planned resource use for Program 1.1 includes:

• the DMO major capital investment program of $4,976.1m, which comprises the Approved Major Capital Investment Program of $4,329.1m and $647.0m of work planned to be transferred to the DMO during 2011-12 from Defence

• the DMO minor capital investment program of $113.3m, including the approved minor program of $73.8m and $39.5m of work to be transferred to the DMO during 2011-12

• direct appropriation of $227.4m relating to Acquisition Workforce and Operating Expenses

• resources received free of charge from Defence of $9.5m.

2010-11 2011-12 2012-13 2013-14 2014-15Estim ate Budget Forw ard Forw ard Forw ardoutcom e year 1 year 2 year 3

$'000 $'000 $'000 $'000 $'000Departmental Expenses:

Departmental appropriation 186,477 227,399 258,646 269,867 288,862Special Accounts 4,753,232 5,089,454 4,174,276 5,152,926 6,123,764Expenses not requiring appropriation

in the Budget year 9,295 9,527 9,765 10,009 10,260Total program expenses 4,949,004 5,326,380 4,442,687 5,432,802 6,422,886


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Australian Defence industry involvement in major capital equipment projects will be reported as an appendix in the Defence Annual Report 2011-12.

TOP 30 PROJECTS BY 2011-12 FORECAST EXPENDITURE

Table 85 lists the Top 30 Government-approved major projects by forecast expenditure for 2011-12. Schedules for delivery of the capability are included in the descriptions of the top 30 major projects; descriptions also include project risk and strategies employed by the project office to manage the risk.

In 2011-12, the 10 largest projects within the Top 30 list are forecast to constitute 64 per cent of the DMO's total forecast acquisition expenditure for 2011-12 (predicated on the forecast outcome for 2010-11). This level of dependence on a small number of projects for achieving the DMO's overall acquisition budget is significant. Careful schedule management of these key projects by both the DMO and by industry suppliers throughout the supply chain will be essential to achieve the DMO's forecast budget.

Program 1.1 Deliverables

The DMO is currently managing over 190 major projects. A major capital equipment project is defined as a project with strategic importance and is part of the Defence Capability Plan (DCP).

Key deliverables are specified under each MAA, and the Top 30 major capital equipment projects are discussed under the project headings in the following text. A status update on other major projects included in the Top 30 list in previous years is provided, at Table 85.

Minor capital projects deliver capability to meet emerging enhancement, replacement or new requirements of relatively low values and are funded from allocations outside the DCP. There are currently six minor capital investment programs funded by the Capability Managers which incorporate more than 100 minor aquisition projects with an average value of $8.0m. The Top 10 minor projects are discussed under the project headings following Table 88.

Program 1.1 Key Performance Indicators

The key performance indicators are being on schedule, within budget and to the required standard. They vary with each project and are specified in the MAAs.


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Table 85: Top 30 projects by 2011-12 forecast expenditure (Gross Plan)[1]

Projectnumber/

phase

Approvedproject

expenditure

$m

Estimatedcumulative

expenditure to30 June 2011

$m

Budgetestimate2011-12

$m

General Manager Systems

Aerospace Systems

Air to Air Refuelling Capability AIR 5402 1,838 1,378 235

Bridging Air Combat Capability AIR 5349 Phase 1

3,537 2,635 177

F/A-18 Hornet Upgrade AIR 5376 Phase 2

1,925 1,544 90

C-17 Globemaster III AIR 8000 Phase 3

1,852 1,320 49

Airborne Surveillance for Land Operations JP 129 Phase 2

98 29 34

Electronic Systems

Next Generation Satellite Communications System

JP 2008 Phase 4

898 402 135

Battlespace Communications Systems (LAND)

JP 2072 Phase 1

267 103 109

Battle Management System LAND 75 Phase 3.4

329 84 101

Ultra High Frequency Satellite Communications

JP 2008 Phase 5A

410 235 84

Dismounted Battlegroup and Below Command, Control Communication System

LAND 125 Phase 3A

113 24 53

Joint Command Support Environment JP 2030 Phase 8

147 84 30

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

AIR 5333 274 224 30

Explosive Ordnance

Follow-On Stand Off Weapon AIR 5418 Phase 1

396 249 43

Lightweight Torpedo Replacement JP 2070 Phase 3

303 239 29

Bridging Air Combat Capability AIR 5349 Phase 2

184 104 29

Helicopter Systems

Multi Role Helicopter AIR 9000 Phase 2

3,748 1,903 393

Armed Reconnaissance Helicopter AIR 87 Phase 2

2,060 1,754 118


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Note1. The Top 30 Major Projects are based on a review of expenditure plans for 2011-12 and the following years conducted in December 2010.

Human Resources and Corporate Services

ADF Deployable Logistics Systems JP 2077 Phase 2B.2

130 18 29

Land Systems

Field Vehicles and Trailers LAND 121 Phase 3

3,278 123 136

Artillery Replacement 155mm Howitzer LAND 17 Phase 1A

333 74 111

Upgrade of M-113 Armoured Vehicles LAND 106 885 710 100

Counter Rocket, Artillery and Mortar (C-RAM)

LAND 19 Phase 7A

263 64 85

Bushmaster Protected Mobility Vehicle LAND 116 Phase 3

930 677 67

Australian Light Armoured Vehicle- Additional

LAND 112 Phase 3

693 599 34

Maritime Systems

Standard Missile Replacement SEA 1390 Phase 4B

617 301 90

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

462 299 59

Deputy Chief Executive Officer

Air Warfare Destroyer

Air Warfare Destroyer Build SEA 4000 Phase 3

7,951 3,076 841

Amphibious Deployment and Sustainment

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

3,122 1,509 707

Collins and Wedgetail

Airborne Early Warning and Control Aircraft

AIR 5077 Phase 3

3,884 3,013 401

New Air Combat Capability

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

2,755 66 65

Total -Top 30 Projects (Gross Plan) 43,682 22,841 4,465

Projectnumber/

phase

Approvedproject

expenditure

$m

Estimatedcumulative

expenditure to30 June 2011

$m


$m


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Table 86: Major Capital Investment Program by 2011-12 forecast expenditure[1]

Notes1. The serials designated in this table are also refer to in the following section of text.2. Management margin is an estimate of possible overall approved capital program expenditure slippage that may accrue as the 2011-12 financial

year progresses.3. Refer to Table 10: Payments to DMO, on page 26.

Table 86 reflects the cash payment required from Defence to fund the current approved and anticipated approvals for the Major Capital Investment Program. The total Gross Plan Project Estimates (serial C) is the sum of the 2011-12 expenditure estimates for the Top 30 projects (serial A) and the remaining 160 projects in the program (serial B). This is referred to as the Program's Gross Plan estimate and is based on project expenditure expected to occur during the year in accordance with project schedules. The Management Margin (serial D) reflects an estimate of possible overall program slippage that may occur during the year, resulting in the estimated funding required from Defence to meet the estimated outturn required.

The inherent uncertainty in a program with a large number of complex and long lead time projects means that unknown project events will occur which may result in a range of possible outcomes including cost savings and better payment terms, variations to project schedules, withholding of planned payments due to contractor non-performance, and variations to payments required under the US Government's Foreign Military Sales (FMS) program. The DMO estimates and applies a slippage model to the program to determine an appropriate Management Margin and annual cash requirement for the program.

The slippage model is predicated upon the assumption that for each year, a certain percentage of project Gross Plan estimates will slip or be accelerated. The percentages applied vary with the composition of the program, the estimates update being conducted and the probability assessments of expenditure plan achievement provided by projects.

Budgetestimate

2011-12$m

Top 30 Projects Gross Plans A 4,465Other Approved Project Gross Plans B 649Total Gross Plan Project Estimates C =A+B 5,114Management Margin: Slippage[2] D -785Payments Required from Defence for Approved

Programs[3] E =C+D 4,329Projects Planned for Government Consideration and

Transfer to the DMO[3] F 647Total Estimated Funds Available G =E+F 4,976


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TOP 30 MAJOR PROJECT DESCRIPTIONS


Aerospace Systems

Air to Air Refuelling Capability—AIR 5402

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

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

Acceptance of the first two aircraft and associated support system elements is anticipated in May 2011, over two years later than originally contracted. Initial Operational Capability (IOC) is expected to be achieved by mid-2012 for a demonstrated air logistics (passenger and cargo) and pod (hose and drogue) refuelling capability.

During 2011-12, delivery and acceptance of the third and fourth aircraft, conversion of the fifth and final aircraft, and delivery and accreditation of the simulation training devices and training facility are planned. The project remains within the approved budget. Further refinement of some systems will be needed over the next year to achieve final capability for all military avionics and refuelling systems. This project is being managed as a Project of Concern.

Bridging Air Combat Capability—AIR 5349 Phase 1

Prime Contractor: Boeing through a Foreign Military Sales (FMS) case with the United States (US) Navy.

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

A total of 15 aircraft have been delivered to RAAF Base Amberley since 26 March 2010, three aircraft ahead of schedule. On 8 December 2010, the Super Hornet achieved its IOC.

The remaining nine aircraft will be delivered in two tranches in the first half of financial year 2011-12. Residual deliveries of mission and support equipment will continue throughout 2011-12 and into 2012-13, as well as a number of software updates required to deliver the Final Operational Capability (FOC), scheduled for December 2012.

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

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

• Boeing (US) - for the avionics and electronic warfare self protection upgrade

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

• Raytheon - for the Radar Warning Receiver

• The US Navy - for aircraft software integration and the acquisition of the radar warning receiver

• SAAB (Sweden) - for supplementary countermeasures dispensing systems

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

• Elbit Systems Limited (Israel) - for Hornet Data Recorder.

This phase is progressively delivering a comprehensive capability upgrade to the RAAF's fleet of 71 Classic Hornets including an electronic warfare modification program comprising a replacement radar


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warning receiver, a supplementary countermeasures dispenser and electronic countermeasures systems, and an enhanced data recording capability.

Key activities for 2011-12 include completing the final stages of acceptance and operational test and evaluation, delivery of new countermeasures pods, and finalising the in-service support arrangements for the electronic countermeasures system pods and upgrades to the previously acquired aircrew training simulators required to align with Hornet aircraft capabilities being introduced in later phases.

Technical integration risks have been progressively reduced and full delivery of the Electronic Warfare capability is scheduled for April 2013.

C-17 Globemaster III—AIR 8000 Phase 3

Prime Contractor: Boeing through a FMS case with the US Air Force.

This Project provides a global heavy airlift capability based around four Boeing C-17 Globemaster III aircraft and related provisions including an enhanced US-common electronic warfare self-protection system. The four aircraft were delivered between December 2006 and March 2008 under Phase 3 of the project. A fifth C-17will be delivered under Phase 4 of the project and is scheduled for delivery in August 2011. The C-17 fleet significantly enhances the ADF's ability to support national and international operations and major disaster rescue and relief efforts.

The continued focus in 2011-12 will be on maturing C-17 sustainment requirements including spares, and the procurement of ancillary items such as training devices, role expansion equipment and aircraft self protection enhancements.

The AIR 8000 Phase 3 C-17 acquisition project remains within budget, on schedule and within scope to deliver remaining self-protection improvements, a cargo compartment training device for Loadmaster training, specialist role equipment and mature support arrangements. FOC will be achieved when mature C-17 facilities have been established, which is anticipated by December 2011.

Airborne Surveillance for Land Operations—JP 129 Phase 2

Prime Contractor: AAI Corporation through a FMS case with the US Army.

This phase seeks to provide two RQ-7B Shadow 200 Tactical Unmanned Aerial Vehicle (TUAV) systems, each comprising five air vehicles, two ground control stations, a tactical launch and recovery element, and associated tactical support systems. The first TUAV will be delivered in 2011 with the second planned to be delivered in early 2013.

During 2011-12 additional equipment for the first system will be delivered and the second TUAV system hardware and associated support equipment and setting up an Australian based Shadow 200 training capability is expected to be completed.

The key risks for JP129 Phase 2 relate to the early deployment of the first system by the end of 2011 and include activities associated with training of Army personnel, establishment of logistics support arrangements and airworthiness release. The risks are being managed through the project's inclusion on the Project of Concern list.

Electronic Systems

Next Generation Satellite Communications System—JP 2008 Phase 4

Prime Contractor: Boeing through a FMS case with the US Government.

This phase of the project seeks to deliver high-priority components of the next generation satellite communication system that has been supporting the ADF from 2008. There are currently three satellites providing operational capability to Australia. The project addresses the ADF's wideband satellite communications requirements by partnering on the US Wideband Global Satellite (WGS) communication system program.


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The project is currently participating in the design and delivery of a satellite remote control capability in Australia, which is critical to the placement of a satellite. The US remains on track for production of satellites four through six during the coming financial years and, given the project's positive track record, the likelihood of successful launches is good.

During 2011-12 the key major activities planned include:

• establishment of the WGS control system in Australia

• completion of the detailed design for the WGS 6 launch rocket

• transition of WGS 4 into operational service

• transition of the Western and Eastern interim anchoring stations into operational service.

Battlespace Communications Systems (LAND)—JP 2072 Phase 1

Prime Contractors: Elbit Systems Limited, Harris Corporation and Raytheon Australia.

This phase of the project seeks to deliver commercial off-the-shelf and military off-the-shelf communications systems that will provide capabilities to meet the high priority gaps identified in the current Battlespace Communications System (LAND) (BCS(L)). In particular the project will acquire the narrowband and wideband combat radio systems in support of the LAND 75/125 Battle Management System (BMS) and the Battlefield Command and Support System (BCSS), and will provide the latest generation of High Frequency radios.

Radios and ancillaries will be acquired through direct commercial sales with the Original Equipment Manufacturers (OEM). Integration and installation of these systems into platforms (including vehicles and soldiers) will be achieved under the Battle Group and Below Command, Control and Communications Systems (BGC3) Contract with Elbit Systems Limited, as the system integrator. Initial support arrangements will be delivered through radio OEMs and their Australian based representatives.

Deliverables for 2011-12 include completion of the BGC3 detailed design review, delivery of the core radio systems to enable the tactical voice and data services for BGC3, and the establishment of training and support facilities in Australia.

Phase 1 IMR has been aligned with LAND 75/125 and is based on outfitting a motorised infantry company. The system will provide the ability for Soldiers and their vehicles to wirelessly exchange combat data and voice communications demonstrating an initial networked BGC3. Further development during the BGC3 contract is planned to enable the Commonwealth to achieve its Networked Centric Warfare Milestone - Initial Networked Land Force

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

Battle Management System—LAND 75 Phase 3.4

Prime Contractor: Elbit Systems Limited.

LAND 75 Phase 3.4 will deliver a vehicle-mounted, battle group level Battle Management System (BMS) in support of Network Centric Warfare Roadmap milestones. This capability is to be delivered in cooperation with JP 2072 Phase 1, which is delivering the combat radio system and LAND 125 Phase 3A, which is delivering the dismounted BMS.

A contract for the Battle Group and Below Command, Control and Communications System (BGC3) was signed with Elbit Systems Limited on 15 March 2010 following a world wide competitive tender. IOC, to be delivered to an infantry company in 7 Brigade in Brisbane, is due in July 2011. FOC is planned for April 2013.


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The BGC3 is to be integrated into the Bushmaster Protected Mobility vehicle, the M113AS4 armoured personnel carrier as well as the G-Wagon, Unimog and Mack logistic vehicles.

The combat radio system will provide upgraded communications for these vehicles, which will greatly improve the amount of information available to land force commanders.

The major risk associated with LAND 75 Phase 3.4 is the development of approved vehicle installation designs for the large number of platforms that the system is to be fitted to and the associated complex design approval process. This risk is being managed through the use of the strategic materiel contracting template that will generate all of the necessary information needed for design approval.

Ultra High Frequency Satellite Communications—JP 2008 Phase 5A

Prime Contractor: Intelsat LLC.

This phase of the project seeks to deliver an enhanced Ultra High Frequency (UHF) satellite communications capability over the Indian Ocean region. Intelsat LLC has been contracted to include a hosted UHF payload, owned by Defence, on the IS-22 commercial satellite. The IS-22 satellite will be launched in mid-2012, providing commercial pay-TV and UHF data services.

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

The key activity during 2011-12 will be the completion of the satellite and hosted payload, culminating in launch and In Orbit Testing by mid 2012. This outcome will provide the majority of the capability to be delivered by the project.

The highest risk for this project remains a satellite launch failure. However, due to the good track record of the launch vehicles being used, the likelihood remains low. The design heritage of the payload, which traces back to several highly successful UHF payloads, ensures that the technical risk also remains low.

Dismounted Battlegroup and Below Command, Control and Communication System—LAND 125 Phase 3A

Prime Contractor: Elbit Systems Limited.

LAND 125 Phase 3A is tightly coupled and aligned with LAND 75 Phase 3.4 and JP 2072 Phase 1 and will deliver the dismounted components for the Battlegroup level BMS across a Brigade Group in support of the Network Centric Warfare Roadmap Milestones.

This capability is designed to be carried upon the Dismounted Commander, with their supporting team at the higher operational levels. The capability will provide unparalleled situational awareness, common battle picture, improved data and voice communications and improved planning in the operational, combat and individual domains through the delivery of enhanced information superiority. Information superiority will support faster decision cycles, reduced risk of fratricide and enhanced operational tempo from contact to completion.

A contract for the Battlegroup and Below Command, Control and Communications System (BGC3) was signed with Elbit Systems Limited on 15 March 2010 following a world wide competitive tender. IOC based on an infantry company in 7 Brigade in Brisbane, is due in July 2011. FOC is planned for April 2013.


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Joint Command Support Environment—JP 2030 Phase 8

Prime Contractors:

• System Integrator Contractor: CSC Australia

• Capability Development Contactor: Lockheed Martin Australia

• Support Contractor: Lockheed Martin Australia.

JP 2030 Phase 8 is planned to be implemented in three separate sub-phases called 'Evolutions' that will incrementally deliver capability elements. Evolution 1 was approved by Government in June 2009 and provided for the accelerated acquisition of the Joint Planning Suite (JPS) and Joint Operations Portal (JOP) capability. Contracts with the three prime contractors were signed in mid to late 2009.

Initial capability delivery of the Joint Command Support Environment Support (JCSE) system under Evolution 1 was achieved in February 2010 with Release 1 of a three release program of the JOP and JPS elements. Release 2 was implemented in August 2010 and Release 3 is planned for October 2011.

During 2011-12 the Evolution 2 business case will be progressed for consideration by Government planned for the third quarter of 2011. Evolution 2 will add additional capability elements of a HQ Joint Operations Command Preparedness Management Information System, improvements to Situational Awareness, further enhancements to the JPS and provision of a Special Operations Combat Net Radio Interface.

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

Prime Contractor: Boeing Defence Australia Limited.

Referred to as Project Vigilare, this project is replacing the Air Defence Command and Control System with new systems at Northern Regional Operations Centre (NROC) (declared operational on 2 September 2010) and Eastern Regional Operations Centre (EROC) located at RAAF Bases Tindal and Williamtown respectively. Outside the main contract with Boeing the project will also design and deliver an integrated ADF Air Defence System communications network and integrate over 45 different interfaces and sensors.

The Vigilare capability represents a highly networked command and control capability for the RAAF, combining surveillance, airspace battle management and provision of the Recognised Air Picture (RAP) to higher Defence headquarters. The RAP combines data and information from over 250 sources in near real time. The Vigilare capability includes integrated full voice and data communications across all security domains and a sophisticated implementation of tactical data links, including Link-11 and Link-16.

The major activities for 2011-12 will be the completion of operational test and conditional acceptance activities at EROC. The Vigilare system (both EROC and NROC) are planned to be used for a range of Defence exercises, including Aces South, Aces Strike, Aces North and Talisman Sabre during 2011. The Vigilare system is planned to be declared fully operationally capable in the third quarter of 2011.

Project Vigilare is being managed as a Project of Concern.

Explosive Ordnance

Follow-On Stand Off Weapon—AIR 5418 Phase 1

Prime Contractors: Lockheed Martin under both a direct commercial contract and through a FMS case with the US Air Force.

This phase is acquiring the AGM-158 Joint Air-to-Surface Standoff Missile (JASSM) and integrating it with the F/A-18A/B Hornet to improve weapon terminal effectiveness against well defended targets. The US Navy has now completed and certified the F/A-18 A/B operational flight program software to utilise JASSM. A successful live JASSM firing was conducted in the US from an Australian F/A-18A/B aircraft on 3 December 2010, a significant milestone in the integration program


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The project is working towards achieving IOC by December 2011 and FOC in 2012. This reflects a slip in IOC of 12 months due to F/A-18A/B integration and Woomera test delays. The primary risk to achieving IOC is the successful completion of the planned end-to-end operational test and evaluation at Woomera in 2011. Air Force, Capability Development Group, DSTO, US Air Force, Lockheed Martin and DMO are working together to manage the tasks and milestones required in the lead up to this event.

AIR5418 Phase 1 is being managed as a Project of Concern.

Lightweight Torpedo Replacement —JP 2070 Phase 3

Prime Contractor: Eurotorp, Thales.

The scope of JP2070 Phase 3 includes the establishment of an Australian manufacturing and support capability for the Eurotorp MU90 lightweight torpedo and delivery of sufficient quantities of MU90 lightweight torpedoes to meet war reserve requirements.

Significant activities planned for 2011-12 include the completion of MU90 MK I deliveries and the commencement of MU90 MK II deliveries.

The major risks for JP2070 Phase 3 are the successful transfer of MU90 MK II supplier skills and technical knowledge to Australian industry and delays to production schedule through the diversion of resources from assembly of war shot torpedoes to support Phase 2 test and evaluation work. The skills and knowledge transfer risk is being mitigated through close liaison with the contractor and the international MU90 user community and the contractor resource risk is being mitigated through careful planning of the MU90 test and evaluation programme.

JP2070 Phase 3 is being managed as a Project of Concern.

Bridging Air Combat Capability—AIR 5349 Phase 2

Prime Contractor: through a FMS case with the US Government.

AIR 5349 Phase 2 is acquiring and introducing 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.

Delivery of AIM-9X Air-to-Air missiles, AGM-154 Joint Stand Off Weapons (JSOW) and infrared counter measures occurred in January 2010 and additional stocks of AGM-154 JSOW and AIM-120 Advanced Medium Range Air to Air Missiles (AMRAAM) are programmed for delivery in 2013 and 2014.

US Navy flight testing of the additional AGM-154 JSOW will be undertaken in 2011-12 and any delay to this test program will place the delivery schedule at risk. Project activities will focus on monitoring test events, taking action to mitigate risks as they arise, and data analysis and certification of the weapon.

Helicopter Systems

Multi Role Helicopter (MRH)—AIR 9000 Phase

Prime Contractor: Australian Aerospace.

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


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The MRH-90 flying rate of effort has been less than planned, leading to significant delays in aircrew training and certification. To address this, the DMO will work with industry in 2011-12 to improve the immature support system, aircraft systems reliability, and contractual arrangements.

The objectives for 2011-12 will be to recommence accepting aircraft subject to satisfactory resolution of deficiencies identified with the aircraft, continue to mature the MRH support arrangements and attain an Australian Military Type Certification and Service Release in order to achieve the IOC (Navy) and replace the Sea King capability.

Armed Reconnaissance Helicopter—AIR 87 Phase 2

Prime Contractor: Australian Aerospace

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

The re-baselined schedule to deliver the initial operational capability to Army was achieved in September 2009, 27 months later than originally contracted due to delays in training that resulted from delays in the Franco-German program, poor support arrangements and slow delivery of spares. All 22 ARHs are contracted for delivery by end July 2011, with FOC expected by December 2012.

The objectives for 2011-12 are to complete acceptance of all ARH and associated supplies, continue to mature the support arrangements and improve ARH availability rates, and achieve a deployable capability. The key risks to the program are linked to delivery of remaining aircraft, resolution of the technical issues associated with the helmet mounted sight and display and maturing the logistics support system.


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

Prime Contractor: Mincom

The objective for JP 2077 Ph 2B.2 is to build on the core transactional element of the Military Integrated Logistics Information System (MILIS) delivered in JP2077 Phase 2B.1 and close the most critical logistics capability gaps. The project will deliver a Deployable Logistics System (DLS) and Integrated In-Transit Visibility system (IITV).

Mincom, a Brisbane based company, is the prime vendor for the core DLS and IITV. Currently Mincom is contracted for Solution Design only. The contract for build and delivery is expected to be established with Mincom in the first quarter 2011-12.

The focus for 2011-12 will be on the completion of the Solution Design stage and commencement of the Build and Delivery stage.

The main risk for 2011-12 is that the overall project cost will increase, requiring access to contingency. This is due to a delay in commencement resulting from JP2077 Phase 2B.1, increase in solution complexity and changes in the system accreditation and regulatory framework compliance.


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Land Systems

Field Vehicles and Trailers—LAND 121 Phase 3

Prime Contractors:

• Light/Lightweight Vehicle Capability: Mercedes-Benz Australia-Pacific

• Light/Lightweight Trailer Capability: Haulmark Trailers Australia

• Medium Heavy Vehicle Capability: Not yet selected

• Medium Heavy Trailer Capability: Haulmark Trailers Australia

• Additional Bushmaster vehicles: Thales Australia.

Project Overlander is a multi-phased project to deliver the ADF's future field vehicle (including modules as a component of the vehicle) and trailers. Under Phase 3 Defence plans to acquire:

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

• 973 lightweight/light trailers

• 293 Bushmaster protected mobility vehicles (reported under LAND 116) plus 184 trailers

• protected and unprotected medium/heavy vehicles, specialist modules and trailers.

Light/lightweight capability: Key activities for 2011-12 will be the continued receipt and delivery of production vehicles into service, refinement of the through-life support capability and the continued training of vehicle operators and maintenance personnel. Prototypes trailers will be received mid 2011, with production scheduled to commence in late 2011 and the trailers due to enter into service in June 2012.

Medium/heavy capability: Vehicle capability (including modules) will be provided in an array of variants in both protected and unprotected configurations, including semi trailers, tow trucks, integrated load handling systems and flatbeds. In December 2010 the evaluation of tender responses from three down-selected companies - Rheinmetall MAN, Mercedes Benz Australia Pacific, and Thales Australia - was completed. Source selection is being finalised for Government consideration by mid year and contract signature in 2011-12. Negotiations for the medium/heavy trailer will commence with Haulmark Trailers Australia after signature of the medium/heavy vehicle contract. Contract signature for the medium/heavy trailers is scheduled for the first quarter of 2013.

LAND 121 Phase 3 Medium/Heavy Capability component is being managed as a Project of Concern

Artillery Replacement 155mm Howitzer—LAND 17 Phase 1A

Prime Contractor: through several US Government FMS cases.

This will deliver 35 M777A2 Lightweight 155mm Towed Howitzers, a Battle Management System - Fires Command and Control system, and course correcting fuzes. It has an In-Service Date of mid-2011, with FOC scheduled for achievement in 2013.

The first howitzer was delivered in August 2010 and another 12 howitzers are expected to be delivered by mid-2011, with the remaining 20 howitzers scheduled for delivery by March 2012.

The first delivery of battle management system software is planned to occur in May 2011. This version will be used for engineering and training development purposes. Operator training will commence in September 2011. The radios required to establish the communications infrastructure for the digitised, networked battle management system are currently planned for delivery in the May / June 2011 timeframe.


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Upgrade of M 113 Armoured Vehicles—LAND 106

Prime Contractor: BAE Systems Australia Defence

This project is upgrading the Army's M113 A1 vehicles to improve protection, lethality, mobility and habitability. The upgrade replaces most of the vehicle, retaining only the hull, hatches, rear door and communications systems. In addition to the 350 vehicles for the initial requirement, 81 additional vehicles are being purchased to support the Army's Enhanced Land Force (ELF) initiative. In August 2009 a contract change was approved to stretch the only un-stretched variant, the armoured mortar.

Designs for the first six variants (personnel, fitters, recovery, command, ambulance and logistics) were completed between 2007 and 2010. Design of the mortar variant is scheduled for completion in November 2011. Construction of an Initial Production Vehicle was completed in December 2010 and this prototype has entered the Design Test & Evaluation phase. Defence is working with the contractor to develop an approved repair method ahead of commencement of the hull conversions scheduled for early 2012.

Final contracted delivery date for all 431 vehicles is scheduled for December 2012.

Counter Rocket Artillery and Mortar (C-RAM)—LAND 19 Phase 7A

Prime Contractors: Saab AB of Sweden and through a US Government FMS case.

The C-RAM project is delivering a system that warns friendly forces of incoming enemy rocket, artillery and mortar attacks in time for them to take defensive positions and increase their chance of survival.

The delivered system consists of radars, laptop computers, sirens and strobe lights. When networked, this system can detect enemy rocket, artillery and mortar attacks before the projectiles from these attacks land near friendly troops.

Contracts were signed with Saab in 2010 to deliver Giraffe radar systems. A US Government FMS program was also established in 2010 to deliver Lightweight Counter Mortar Radars and all of the networking equipment, sirens and strobe lights. The US Government signed contracts with a range of contractors to deliver their equipment, the main contractor being Northrop Grumman.

In late 2010 the first deployment of equipment was delivered and installed in Afghanistan to Australia's main operating base. Additional equipment will be delivered in 2011 and 2012 to provide for use in other Australian patrol bases and for an Australia-based training system.

Bushmaster Protected Mobility Vehicle—LAND 116 Phase 3

Prime Contractor: Thales Australia.

This phase of the project, referred to as Project Bushranger, is acquiring 737 vehicles in seven variants (troop, command, mortar, assault pioneer, direct fire weapon, ambulance and Air Defence). The vehicles will provide protected land mobility to Army combat units and Air Force Airfield Defence Guards. All 300 troop, command, assault pioneer, mortar, direct fire weapon and ambulance variants under the original acquisition contract have been delivered. Delivery of 144 ELF vehicles was completed in April 2009.

The prime focus of the project for 2011-12 is the completion of the delivery of 293 Bushmaster vehicles by June 2012 to satisfy Production Period 3 (Project LAND 121) requirements. The project will also determine the most appropriate way to meet the requirement for the provision of up to 184 protected mobility vehicle compatible trailers, which are also part of Production Period 3.

Key risks are that achievement of the Detailed Design for the External Composite Armour solution will be delayed due to completion of design, development and verification activities; and further that the Protected Mobility Vehicle may not be certifiable for sustained towing, which has the potential to impact on the requirement to procure a trailer.


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Australian Light Armoured Vehicle - Additional—LAND 112 Phase 3

Prime Contractor: General Dynamics Land Systems - Canada (GDLS-C)

The LAND 112 Phase 3 project acquired 144 additional ASLAVs, 59 remote weapon stations capability, nine Crew Procedural Trainers and conducted an automotive standardisation program for the Phase 2 vehicle. The project is currently acquiring Multi Spectral Surveillance Suites for integration on the ASLAV through the ASLAV Surveillance Project. Minor facility upgrades in the three units that operate the ASLAV fleet are also occurring.

The ASLAV Surveillance Project will provide an integrated sensor-based surveillance capability for ASLAV Surveillance variants operated in the Australian Army's Cavalry units. The Multi Spectral Surveillance Suites is a mast mounted radar and electro-optic surveillance system to be fully integrated on the ASLAV-Surveillance variant. The Contractor for the delivery and integration of the Multi Spectral Surveillance Suites is DRS Sustainment Systems, Inc-a United States based company. The Project consists of three stages; Stage 1 Prototype development, Stage 2 Production and Stage 3 Through Life Support (TLS). Stage 1 is complete and the Project is currently in Stage 2 for the production, testing and delivery of 18 Multi Spectral Surveillance Suites units.

Key project milestones in 2011-12 include production of an initial Multi Spectral Surveillance Suites unit for verification and validation testing, commencement of full production for the remaining Multi Spectral Surveillance Suites and conduct of initial operator and maintainer training courses. Planning and development for the Stage 3 TLS contract will also be a priority. IMR of the Multi Spectral Surveillance Suites is scheduled for December 2012, with FMR scheduled for April 2013.

Maritime Systems

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

Prime Contractor: through a US Government FMS case and various commercial contracts - Lockheed Martin-US, AAI Corporation, BAE Systems-US and Thales Australia.

This project upgrades four Adelaide Class Frigates with the SM-2 Surface-to-Air Mid Course Guidance mode missile capability, to acquire the weapons, and to provide missile technician training.

The planned 2011-12 outcome is the conduct of acceptance testing and evaluation of the SM-2 Stage 2 Mid-Course Guidance system to verify and enable configuration and installation of this capability in the Adelaide Class frigates.

The highest risks for this project include the availability of ships for installation and test, and the risk inherent with interfacing this new technology into the existing ships. Schedule risk is mitigated by collaborative monitoring of the ships' schedules for maintenance availabilities with Navy. The new technology integration risk is mitigated by a regime of comprehensive tests and evaluation prior to acceptance.

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

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

This project is to deliver a phased array radar system to the Anzac Class Frigate for target indication/tracking and mid-course guidance and target illumination for the Evolved Sea Sparrow Missile in conjunction with other sensor and combat management system upgrades delivered under SEA 1448 Phase 2A.

The focus for 2011-12 includes at-sea testing and acceptance into initial operational service of the Anti Ship Missile Defence Upgrade in the lead ship HMAS Perth is scheduled to complete in July 2011. Based on successful acceptance into initial operational service by Navy, Defence is to seek approval from Government for installation of the capability in the remainder of the Anzac Class ships under a program commencing in early 2012.


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The highest risk for the project relates to the development of this leading-edge radar technology. Achievement of phased array radar performance and understanding of inter-system interference effects in the complex electromagnetic environment of the ship continues to be measured in at-sea testing. Testing to date continues to provide confidence thereby mitigating this risk, which continues to be managed by a comprehensive regime of test and evaluation. The project is being managed as a Project of Concern.


Air Warfare Destroyer

Air Warfare Destroyer Build—SEA 4000 Phase 3

Prime Contractor: The AWD Alliance (comprising the DMO, ASC AWD Shipbuilder Proprietary Limited and Raytheon Australia Proprietary Limited).

The Commonwealth also has a platform system design contract with Navantia, SA (Spain), and the Aegis Combat System is being supplied through a US Navy FMS program.

The AWD project is progressing within budget, but has experienced schedule problems by subcontractor BAE Systems with early hull block production. The AWD Alliance's operational schedule for the project includes some schedule float, but detailed analysis is now required by the AWD Alliance to determine the impact of these subcontractor delays on ship delivery milestones.

There has been good progress on the acquisition and integration of the Aegis Combat System equipment and the adaptation of the US Navy Aegis computer program for the AWDs. Progress on the development and testing of the AWD Australian Tactical Interface (ATI) has also been good. ATI integrates the core Aegis system with Australian-selected sub-systems such as sonar, infrared search and track, and very short range defence.

Major milestones in 2011-2012 include the delivery of hull blocks to Adelaide from BAE Systems in Melbourne and Forgacs in Newcastle, consolidation of hull blocks and laying of the keel for HMAS Hobart in Adelaide, and a substantial increase in combat system equipment delivery.

Areas of risk and opportunity for the project in 2011-12 include achieving peak hull production capacity, recruiting and training people to meet this peak workforce demand, successful delivery of hull blocks to Adelaide, maintaining a safe workplace as shipyard production increases, and stabilising workflow in order to achieve maximum shipbuilding productivity.


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

Prime Contractor: BAE Systems Australia Defence.

The JP 2048 Phase 4 A/4B project is acquiring two Canberra Class 27,000-tonne Amphibious Ships referred to as Landing Helicopter Dock (LHD). This project is one of a number of projects grouped under the Amphibious Deployment and Sustainment (ADAS) Program and designed to replace and enhance Navy's amphibious and afloat support capability. Phase 3 of the Program will acquire watercraft to act as ship to shore connectors to land personnel, vehicles and equipment from the LHDs.

The Government announced on 20 June 2007 that Tenix Defence (now BAE Systems Australia Defence), offering a design by the Spanish company Navantia, had been selected as the preferred tenderer for delivery of the LHD.

The first LHD (LHD01) keel laying occurred on 23 September 2009. LHD01's hull was launched on 17 February 2011 and is undergoing internal fit-out. This activity is expected to be completed by June 2012, after which the LHD01 hull will commence its journey to Australia. The second LHD (LHD02) keel was


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laid on 18 February 2011. Progress of erection of LHD02 hull is well advanced with 10 per cent of the hull erected on the slipway at the end of March 2011.

Over 2011-12 the superstructures of both LHDs will be constructed, fitted out and integrated with the hulls by BAE Systems Australia Defence at its Williamstown dockyard in Melbourne. L3 Communications is subcontracted to BAE Systems Australia Defence to supply the communications system and Saab Systems Australia to provide the combat system and integrate the combat management system.

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


Airborne Early Warning and Control Aircraft—AIR 5077 Phase 3

Prime Contractor: Boeing.

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

Project Wedgetail is being managed as a Project of Concern due to significant schedule slippage and technical risks encountered with this project. While Boeing had planned to deliver the first aircraft in a final operating configuration in December 2010, this milestone was not met due to ongoing issues with subsystem technical maturity and integrated system stability. Boeing and the Commonwealth conducted negotiations to redefine the path to final acceptance and reached agreement in March 2011. Acceptance of the next increment of aircraft capability is now planned for June 2011, with final acceptance of all aircraft hardware components of the system by the end of 2011 and final acceptance of all remaining aircraft software components in March 2012. Acceptance of the first fully configured aircraft in March 2012 will represent a 64 month delay against the original contract baseline.

Incremental delivery of the associated ground support systems and supplies, which commenced in April 2010, will now be completed by March 2012. While planned for February 2011, construction of the main AEW&C facility at RAAF Base Tindal was completed in April 2011. The overall risk rating for the project remains high due to risks associated with integrated system maturity (notably electronic support measures technical maturity), ongoing software development, and completion of the test and evaluation program. These risks continue to be actively managed through close interaction between the Commonwealth and the contractor and the implementation of the incremental delivery and acceptance program.


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

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

On 25 November 2009 the Australian Government announced second pass approval of Stage 1 of Phase 2A/B of the New Air Combat Capability (NACC) project, comprising acquisition of Australia's first 14 Conventional Take-Off and Landing F-35 JSF aircraft and the infrastructure and support required for initial training and testing, with delivery commencing in 2014.


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On current plans Australia's first 10 JSF will remain in the US for a number of years for initial conversion training of Australian pilots and maintainers and also participation in operational test activities. The next four JSF are planned to arrive in Australia in 2017.

During 2011-12 the project anticipates completion of the contracting activities through the US Government to Lockheed Martin for the acquisition of the first two JSF aircraft and associated support systems. These aircraft will be delivered to the US international training centre in 2014 to allow the ADF pilot training to commence.

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

Following a Technical Baseline Review in late 2010 the US JSF Program is now undergoing an Integrated Baseline Review focused on cost and schedule. The outcomes of the review and the revised US JSF Program plan are not expected to be known until mid 2011. Whilst cost increases and schedule delays are anticipated, the NACC project considers current approved cost and schedule contingency adequate, however the diminishing buffers are of considerable concern and are being closely monitored. Together with partner countries, Australia is actively managing contractor performance with concerns on cost and schedule and overall program affordability.

Defence M


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MAJOR ACQUISITION PROJECTS NOT INCLUDED IN THE TOP 30 PROJECTS—CURRENT STATUS

Table 87 provides an update on the status of major projects reported in previous financial years. These projects were not ranked in the Top 30 projects by expenditure in 2011-12.

Table 87: Current status of previously reported Top 30 projects (projects reported in the last five financial years[1]

Project number/phase

Lastfinancial yearreportedin Top 30

Approvedproject

expenditure

$m

EstimatedCumulative

expenditureto 30 June

2011$m

Budgetestimate

2011-12$m

Status report

General Manager SystemsAerospace SystemsHornet Structural Refurbishment Program Stage 2

AIR 5376 Phase 3.2

2009-10 952 325 16 A total of 59 aircraft will receive the discrete structural modifications, referred to as 'Delta' modifications, aimed at delaying or avoiding the need for the major Centre Barrel Replacement (CBR) modification. Delta modifications, have been done to 28 aircraft to date.

The second element is the CBR program, along with some additional discrete structural modifications. Significant work on fatigue testing and analysis has generated substantial fatigue life gains, with the number of aircraft requiring CBR reduced to 10, completed in 2010. Some of the savings from the reduced CBR have been reinvested to remediate a number of ageing aircraft issues via the Hornet Structural Assurance Program.

Hornet Upgrade Project Target Designation System

AIR 5376 Phase 2.4

2006-07 152 117 12 All 41 Litening pods, an enhanced laser and targeting pod that provides a day and night precision targeting capability, and associated datalinks have been delivered. Formal service release of the Litening pod occurred in February 2009. The Litening pod is currently operating under a limited service release, pending resolution of some flight envelope restrictions. Boeing, the US Navy and Northrop Grumman are working on removing the restrictions by August 2011. Development of residual software changes has been delayed whilst higher priority Hornet software changes are progressed.

Defence Portfolio Budget Statem

ents 2011-12

176

Maritime Patrol and Response Aircraft System

AIR 7000 Phase 2

2008-09 128 51 27 DMO is finalising a Production, Sustainment, and Follow-on Development MoU with the US Navy for consideration by Government at Intermediate Consideration in late 2011. This MoU will provide the framework for managing the acquisition, sustainment and the mechanism for the future upgrades and form part of the second pass acquisition business case to be presented to Government in 2014. Project activity and expenditure during 2011-12 is focused on ongoing management of the P-8A Increment two cooperative development, and subject to Government agreement at Intermediate Consideration, the management of a Production, Sustainment, and Follow-on Development MoU.

AP-3C Electronic Support Measure Upgrade

AIR 5276 Phase 8B

2009-10 131 64 18 On 15 October 2010, following a recommendation from Defence, the Minister for Defence announced the inclusion of AIR 5276 Phase 8B on the Projects of Concern list, due to poor contractor performance against the project schedule. The project is forecast to deliver 29 months late by May 2013 relative to the contract baseline of December 2010. Taking into consideration the ongoing risk of further delay, Defence has committed to Government to achieve an In Service Date for the project by December 2013.

AP-3C Capability Assurance Program

AIR 5276 CAP 1

2009-10 89 59 9 The project commenced prototype aircraft modification in November 2010 and is progressing through the test and verification phase. In Service Date is forecast for September 2011.

Electronic SystemsTactical Information Exchange Domain

JP 2089 Phase 2A

2010-11 104 49 13 JP 2089 Phase 2A Anzac-class Multi-Link Upgrade is planned to undertake First of Class installation in the third quarter of 2011. This acceleration advances the original installation date from third quarter 2012 to accommodate Anzac-class operational requirements and ship availability.

JP 2089 Phase 2A Initial Common Support Infrastructure is planned to demonstrate the support infrastructure network monitoring and management capability during 2011-12. This element of the project is a ‘proof of capability’ undertaken as a risk reduction activity to inform the follow on Phase 3A of JP 2089.



Approvedproject

expenditure

$m

EstimatedCumulative


2011$m

Budgetestimate

2011-12$m

Status report

Defence M


177

High Frequency Modernisation

JP 2043 Phase 3A

2010-11 671 433 15 Following acceptance of the final fixed network system in April 2010, all work remaining on this fixed system was completed early 2011. Designated mobile platforms are now being upgraded on a progressive basis through to 2016 using products and design material developed under the prime contract with Boeing Defence Australia. The majority of mobile platforms are not included in the prime contract with Boeing and are yet to be contracted.

Jindalee Radar Network

JP 2025 Phase 3&4

2006-07 1,249 1,239 - The capability was delivered in 2003 with the maintenance and support contract finalised in 2007. Subsequent support arrangements are managed within the DMO’s Sustainment outcome. The residual activities on this project relating to the finalisation of the capability's support environment have now been completed. The project is undergoing final closure activities.

Electronic Warfare Self Protection for Selected Aircraft

AIR 5416 Phase 2

2009-10 292 276 3 Rationalising system configurations and contracting for the support and maintenance of ADF Large Aircraft Infrared Countermeasures System (LAIRCM), covering multiple current and future Airborne programs.

MILSATCOM Terrestrial Infrastructure

JP 2008 Phase 3E

2007-08 210 209 - FOC is being sought from Navy and is anticipated to be achieved by 30 May 2011. A number of purchase orders are open and several new ones will be raised before the final closure of the project. Assets Under Construction (AUC) has been rolled out for the delivered capability; however the inclusion of Radio Frequency (RF) Barriers to the 3E scope has meant that these now have to be included. Time frame for AUC rollout of RF Barriers is 30 October 2011. Project closure is forecast for 30 December 2011.

Explosive OrdnanceLightweight Torpedo Replacement

JP 2070 Phase 2

2010-11 341 236 19 Significant activities planned for 2011-12 include the completion of the acceptance test and evaluation programme to demonstrate that the issues observed during the November 2010 torpedo firings have been satisfactorily resolved; commencement of the operational test and evaluation programme; and completion of certification work to meet Navy regulatory requirements for Initial Operational Release (IOR).

The major risk is the successful and timely completion of test and evaluation activities. This risk is being mitigated through the provision of additional resources, high level management and oversight of the project and close engagement with project stakeholders.

JP 2070 Phase 2 continues to be managed as a Project of Concern.



Approvedproject

expenditure

$m

EstimatedCumulative


2011$m

Budgetestimate

2011-12$m

Status report


ents 2011-12

178

Explosive Ordnance Reserve Stocks

JP 2085 Phase 1B

2008-09 236 209 9 Most of the munitions have been delivered - outstanding issues include remaining delivery of Excalibur Precision Artillery Projectiles and the Advanced Field Artillery Technical Data System Fire Control System.

Mulwala Redevelopment Project

JP 2086 Phase 1

2010-11 370 285 25 Final Acceptance is now scheduled to occur in February 2013, 20 months behind the original contract schedule.

The major risks for JP 2086 Phase 1 are the successful transition of Mulwala propellant production activities from the existing facilities to the modernised facilities and the production of propellants that meet Defence’s certification requirements. Both of these risks are being mitigated by obtaining appropriate technical expertise and engaging closely with key internal and external project stakeholders.

Evolved Sea Sparrow Missiles

SEA 1428 Phase 4

2009-10 89 78 .. Final orders were placed in 2010. Deliveries commenced in late 2010 and are on schedule to be completed by the end of 2013. IOC is scheduled for mid 2011. FOC is scheduled for early 2014.

Land Systems

Direct Fire Support Weapons

LAND 40 Phase 2

2010-11 143 33 6 There have been delays in entering into contract for the Lightweight Automatic Grenade Launcher, as contract negotiation with the preferred tenderer was unsuccessful. A new Acquisition Strategy is being developed.

Tank Replacement Project

LAND 907 Phase 1

2007-08 562 442 23 All major capability platforms have been delivered.

Project goals include finalising Leopard tank disposal, the establishment a through-life support contract, and the acquisition of tank urban survivability kits in preparation for project closure in December 2011.

Maritime Systems

Anzac Ship Project SEA 1348 Phase 2

2007-08 5,381 5,367 6 A program of contractor warranty work, essential safety standard upgrades and work to bring the ships to contemporary standards continues to progress to a schedule that is dependent on ship availability. Project closure activities are commencing.



Approvedproject

expenditure

$m

EstimatedCumulative


2011$m

Budgetestimate

2011-12$m

Status report

Defence M


179

Guided Missile Frigate Upgrade Implementation

SEA 1390 Phase 2.1

2010-11 1,530 1,363 15 Upgrade of all four ships has been completed and is with the Navy for release for operations.

Armidale Class Patrol Boat

SEA 1444 Phase 1

2007-08 537 486 5 The 14 patrol boats are in operational service. Eight have been granted Final Operational Release and the remaing 6 should be released following completion of modification work in 2011-12.

Anzac Ship Anti-Ship Missile Defence

SEA 1448 Phase 2A

2007-08 389 237 23 The combat management system and the infra-red search and track systems in the lead-ship HMAS Perth are intended to achieve IOR during July 2011.

Ships Self Defence Capability

SEA 1779 Phase 1

2007-08 53 45 - Capability scope of this project is complete and project closure is progressing.



Maritime Operations Support Capability

SEA 1654 Phase 2A

2006-07 139 139 - Integrated Logistics Support (ILS) Rectification continues towards full ILS Certification with a scheduled completion date of December 2011. Initial ILS Certification was achieved in 2010 and FOR was achieved January 2011.


Collins Replacement Combat System

SEA 1439 Phase 4A

2007-08 450 427 7 Combat System boat installations are consistent with the approved MAA schedule. However, each installation is dependent on the Full Cycle Docking (FCD) program, consequently completion dates vary according to changes with the Integrated Master Schedule and events that occur during boat maintenance availability. The final two systems are planned for installation in HMA Ships Rankin and Collins during their respective dockings commencing in 2011 and 2012 with project completion in 2015.

Collins Class Submarine Reliability and Sustainability

SEA 1439 Phase 3

2008-09 411 316 13 Major modifications to fire fighting safety, sewage system safety, submerged signal ejector, diesel safety modifications, training systems and a Special Forces capability continue. However, each installation is dependent on FCD program, consequently completion dates vary according to changes with the Integrated Master Schedule and events that occur during boat maintenance availability. Current scheduled dates will not be achieved due to slippage in the Submarine FCD program.



Approvedproject

expenditure

$m

EstimatedCumulative


2011$m

Budgetestimate

2011-12$m

Status report

Logistics Informatiom Systems


ents 2011-12

180

Note1. The Top 30 Major Projects are based on a review of expenditure plans for 2011-12 and the following years conducted in December 2010.

New Heavyweight Torpedo

SEA 1429 Phase 2

2009-10 427 286 15 Heavyweight torpedo boat modifications continue. However, each installation is dependent on the FCD program, consequently completion dates vary according to changes with the Integrated Master Schedule and events that occur during boat maintenance availability.

Final platform modifications in HMA Ships Rankin and Collins will occur during their respective dockings commencing in 2011 and 2012. Torpedo deliveries from the US are being received in accordance with the agreed delivery schedule.

Improvements to the Logistics Information Systems

JP 2077 Phase 2B

2009-10 153 153 - The objective of JP 2077 Phase 2B is to implement the Mincom Ellipse core transaction system into the ADO. It is the first phase of MILIS and is a technical upgrade that will support later phases of JP 2077.

JP 2077 Phase 2B was successfully implemented in July 2010 and is scheduled to close


Detailed Analysis and Acquisition Planning

AIR 6000 Phase 1B

2009-10 103 98 - AIR 6000 Phase 1B was approved at first pass in November 2006 to fund JSF shared development costs and studies to inform second pass in 2009. It is almost fully expensed and largely inactive.



Approvedproject

expenditure

$m

EstimatedCumulative


2011$m

Budgetestimate

2011-12$m

Status report



181

TOP 10 MINOR CAPITAL INVESTMENT PROJECTS BY 2011-12 FORECAST EXPENDITURE

Table 88 lists the Top 10 approved Minor Capital Investment Projects by forecast expenditure for 2011-12. Schedules for delivery of the capability are included in the descriptions of the Top 10 minor projects; descriptions also include project risk and strategies employed by the project office to manage the risk.

Table 88: Top 10 Minor Projects by 2011-12 forecast expenditure[1]

Note1. The Top 10 Minor projects are based on a review of expenditure plans for 2011-12 and the following years conducted in December 2010.

Projectnumber /phase

Approvedexpenditure

$m

Estimatedcumulative


2011$m

Budgetestimate

2011-12$m

NavyDigital Voice Recording Equipment NMP1822 21 4 3

ArmyField Refrigeration Storage & Distribution

AMP081.03 22 7 6

Light Tracked Bulldozer (RPT) AMP007.25 8 .. 5

Replacement Fire Fighting Truck Rural

AMP085.06 12 4 5

Enhanced Land Force (ELF) Weapons Training Simulator System (WTSS)

AMP029.44 26 .. 4

Bullet Trap Blank Firing Attachment

AMP048.42 11 3 4

Australian Light Armoured Vehicle Crew Procedural Trainers

AMP002.12 44 2 3

Air ForceTraffic Alert & Collision Avoidance System (TCAS)

AFM01001 26 11 10

Tactical Communications Router AFM00935 4 .. 3

462SQN Electronic Combat and Monitoring System

AFM00977 3 .. 3

Total -Top 10 Minor Projects 177 30 44


182

Table 89: Top 10 Minor Capital Investment Program by 2011-12 forecast expenditure

Notes1. Management margin is an estimate of possible overall approved capital program expenditure slippage that may accrue as the 2011-12 financial

year progresses.2. Refer toTable 10: Payments to DMO, on page 26.

TOP 10 MINOR PROJECT DESCRIPTIONS

Navy

Digital Voice Recording Equipment—NMP1822

Prime Contractor: SonarTech Atlas Proprietary Limited.

The project scope is to design and install 30 digital voice recording systems for maritime use in 27 ships and three training facilities. The system is to be capable of continuous recording of voice communications over ship internal communication circuits and external radio channels, and between ship bridge and operation room. The systems will provide for the capture of critical operational, damage control and safety voice communication that is reproduced for analysis of critical event reconstruction.

The planned outcomes for 2011-12 are factory acceptance testing until September 2011, with installation and in-built testing of six initial systems continuing until June 2012.

Army

Field Refrigeration Storage & Distribution—AMP081.03

Prime Contractor: Klinge Corporation (US)

The project is acquiring a foodstuff distribution and storage capability consisting of 60 twenty foot refrigerated distribution containers, 125 ten foot field kitchen refrigerated containers, 250 Insulated Perishable Food Load Units, 1500 Non-insulated Perishable Food Load Units and associated ancillary systems. The final capability will be sufficient to sustain a deployed Joint Task Force and Battle Group on independent and concurrent operations.

During 2011-2012 the project will complete equipment acquisition and transition to the sustainment phase. Key activities will include final deliveries of all hardware, introduction into service training, unit issue, achievement of FOC and project closure.

BudgetEstimate2011-12

$mTop 10 Projects Gross Plans 44

Other Approved Project Gross Plans 36

Total Gross Plan Project Estimates 81

Management Margin: Slippage[1] -7

Payments Required from Defence for Approved Programs[2] 74

Projects Planned for Consideration and Transfer to the DMO[2] 39

Total Estimated Funds Available 113


183

Light Tracked Bulldozer—AMP007.25

Prime Contractor: Hitachi Construction Machinery Australia.

AMP 07.25 will deliver 21 light tracked bulldozers to replace the existing in-service fleet of Caterpillar D3C bulldozers. These are predominantly used by Combat Engineer Regiments and Construction Squadrons within Army.

Project milestones for 2011-2012 include testing of the prototype bulldozer and delivery of the 21 new light bulldozers and delivery of initial operator and maintainer training.

Replacement Fire Fighting Truck Rural—AMP085.06

Prime Contractor: SEM Fire and Rescue Pty Ltd.

This project is acquiring 16 Rural Fire Fighting vehicles to replace the Mercedes Benz 911 vehicle fleet operated by Force Engineer Branch units, Incident Response Regiment and RAAF Security and Fire School (RAAFSFS).

During 2011-12 the project will deliver 'train the trainer' training and 14 of the 16 rural fire trucks to Army. The two remaining rural fire trucks will be delivered early in 2012-13.

Enhanced Land Force—Weapons Training Simulation System (ELF-WTSS) - AMP029.44

Prime Contractor: Meggitt Training Systems Australia.

The project will deliver a combined arms simulation training capability, comprising the installation of weapons, hardware, software and training support systems; enabling the fit-out of four additional Weapons Training Simulation System facilities to enhance individual and collective training. The project will expand the existing ADF Weapons Training Simulation System capability with new 24 firing lane facilities at Edinburgh, Townsville and Kapooka and an expansion to the existing facility at Singleton from 12 lanes to 24 lanes.

During 2011-12 the project will deliver a fully functional Weapons Training Simulation System for small arms and marksmanship training at Edinburgh. A second tender activity will be conducted to acquire new weapon types for installation into the new facilities.

Bullet Trap Blank Firing Attachment—AMP048.42

Prime Contractor: Thales Australia Limited.

This project is delivering 54,699 Bullet Trap Blank Firing Attachments for the F88 Austeyr Family of Weapons, F89 Minimi Family of Weapons and M4A1 Carbine Modular Weapon System. This equipment provides the ability to train with blank ammunition and mitigates the risk of injury/death in the event of a live round being accidentally loaded and fired. Currently the F88 variant is being delivered to units with the manufacture of the F88 Carbine variant commencing in May 2011.

By the end of 2011-12 it is anticipated that over 44,000 Bullet Trap Blank Firing Attachments for the F88 Carbine, F89 Minimi Family of Weapons and M4A1 Carbine Modular Weapon System will have been manufactured and delivered to the ADF.

Australian Light Armoured Vehicle (ASLAV) Crew Procedural Trainer—AMP 02.12

Prime Contractor: Thales Australia Limited.

This project will deliver nine ASLAV Crew Procedural Trainers, supporting documentation, training and spares. The facilities housing the Crew Procedural Trainers (which are high-fidelity containerised simulators) will also be upgraded.


184

The project plans to enter into contract with Thales by May 2011. Project activities for 2011-12 will focus on the completion of design review milestones and associated plans and commencement of production later in 2011-12.

Air Force

Traffic Alert and Collision Avoidance System (TCAS)—AFM01001

Prime Contractor: BAE Systems.

This Rapid Acquisition project was approved in December 2009 to install a TCAS on the AP-3C Aircraft for Operations in the Middle East Area of Operations (MEAO). A contract was signed on 16 December 2010 to modify the AP-3C fleet. The prototype aircraft is forecast to be modified in the third quarter of 2011 with an In Service Date of January 2012. Modification of the Flight Simulator to represent the new configuration is forecast to occur mid 2012.

Tactical Communications Router (TCR)—AFM00935

Prime Contractor: The project is at pre contract stage. A tender was released to industry via the AusTender website in March 2011. Source evaluation and selection of a preferred supplier is expected to be completed in September 2011.

The project will enable airspace communications support to deployed airspace coordination elements and mobile air operations teams. The TCR will be a fully deployable system compliant with International Civil Aviation Organisation and ADF requirements enabling secure communications at a classified level.

Key activities for 2011-12 include contract signature with the prime contractor (yet to be determined) in September 2011 and delivery of the first TCR system in May 2012.

The major risk associated with the project is a lack of compliant tender responses from industry resulting in a retender for the requirement. This risk is assessed as low based on industry responses to a previous Request For Information.

462SQN Electronic Combat and Monitoring System - AFM00977

Prime Contractor: A Restricted Tender will be released in early June 2011 with responses due back late July 2011.

The project will provide RAAF with a capability that can provide communication Electronic Support (ES) for protection of deployed assets within Airbases or Forward Operating Bases, as well as an Electronic Attack (EA) capability that will expose ADF pilots (for training purposes) to hostile communications.

Currently 462SQN does not conduct the communications ES role, but with reorganisation this will be a requirement for the unit from the third quarter of 2011. The EA role has been conducted by 462SQN for a number of years under a CAF directive.

Delivery of the capability is planned for the second of quarter 2012.


185

Table 90: Program 1.2 Management of Capability Sustainment Table

Program 1.2: Management of Capability Sustainment


The ADF and its capabilities will be sustained to meet operational requirements as identified in the specific Materiel Sustainment Agreement (MSA).

Sustainment involves the provision of in service support for specialist military equipment, including platforms, fleets and systems operated by Defence. Typical services include repair and maintenance, engineering, supply, configuration management and disposal action. It includes the maintenance 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 $5,684.6m in 2011-12 which represents 51 per cent of the DMO's total expenses.

The planned resource use for Program 1.2 includes:

• the cost of sustainment services to Defence of $4,288.4m

• support for current ADF operations of $599.0m

• direct appropriation of $597.3m relating to Sustainment Workforce and Operating Expenses

• the DMO's elements of Net Operating Costs of $122.7m in support of new capabilities expected to enter service

• support to foreign government activities of $55.0m

• resources received free of charge from Defence of $22.3m.

The Smart Sustainment initiative will grow progressively in accordance with SRP savings targets. Savings targets average around $520.6m each year over the forward estimates period building to $777.0m in 2018-19. These savings have already been deducted from the DMO budget and earmarked for reinvestment in current and future capability.



Departmental appropriation 506,131 597,331 625,243 658,735 693,146Special Accounts 4,350,842 5,065,034 4,776,513 5,062,287 5,399,636Expenses not requiring appropriation

in the Budget year 21,717 22,260 22,816 23,386 23,971Total program expenses 4,878,690 5,684,625 5,424,572 5,744,408 6,116,753


186

TOP 20 SUSTAINMENT PRODUCTS BY 2011-12 FORECAST EXPENDITURE

Table 91 lists the Top 20 sustainment products by forecast expenditure for 2011-12. The key objective of sustaining the ADF and its capabilities to meet operational requirements through support to platforms, equipment and services of the Top 20 products are included in the descriptions that follow the table.


Key deliverables are specified under each MSA, and the Top 20 sustainment products are discussed under the product headings in the following text. There are currently eight MSAs incorporating 108 product schedules.


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


187

Table 91: Top 20 sustainment products by forecast end of financial year outcome in 2011-12


$mGeneral Manager Systems

Aerospace Systems

F/A-18 Hornet Weapons System 187

P-3C/AP-3C Orion Weapons System 111

F/A-18/F Block II Super Hornet Weapons System 110

Lead-in Fighter Hawk 127 Weapons System 89

C-130J-30 Weapons System 78

C-17 Heavy Air Lift 57

C-130H Weapons System 57

Electronic Systems

Wide Area Surveillance Capability 88

Explosive Ordnance

Explosive Ordnance - Navy, Army, Air Force 308

Helicopter Systems

Multi Role Helicopter 104

S70A-9 Black Hawk Weapons System 96

Armed Reconnaissance Helicopter Weapons System 96

S70B-2 Seahawk Weapons System 63

Land Systems

General Service B Vehicle Fleet 79

ADO Commercial Vehicle Fleet 62

Maritime Systems

Fuels and Lubricants - Navy, Army, Air Force 478

Anzac class frigate 211

Adelaide class frigate 106



Airborne Early Warning & Control 171

Collins Class submarines 443

Total -Top 20 Products 2,995

Other Sustainment Product estimates 1,293

Total Sustainment Product Funds Available 4,288

Support to Operations 599

Total Sustainment and Operations Funding 4,887


188

TOP 20 SUSTAINMENT PRODUCT DESCRIPTIONS


Aerospace Systems

Aerospace Systems Division provides through-life support to thirteen fixed wing aircraft types including the F/A-18 Hornet and Super Hornet, AP-3C Orion, C-17 Globemaster III, C-130H and J and PC9. ASD also provides through-life support to a number of advanced flight simulators.

Key objectives for sustainment during 2011-12 include:

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

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

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

• disposal of the F-111 aircraft and associated repairable items and spare parts inventories

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

• taking delivery of the remaining nine F/A-18F Super Hornets and finalising support arrangements for the total fleet of 24 aircraft

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

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

• delivering the first four KC-30A (Air to Air Refuelling) aircraft and associated support system ele-ments.

Aerospace System Products

F/A-18 Hornet Weapons System

Seventy-one F/A-18 Classic Hornet aircraft and training systems are supported by a range of contracts and in-house RAAF workshops. The major challenge in supporting the Classic Hornet fleet continues to be maintaining flying rates on an ageing aircraft, principally due to increased maintenance requirements. During 2010, aircraft serviceability rates improved by approximately 40 percent, due to a number of initiatives established by the DMO and Air Force.

A new sustainment program, the Hornet Structural Assurance Consolidation Program, was approved by Government in late 2010. The scope of this program covers completion of the Structural Refurbishment Program of AIR5376 Hornet Upgrade Phase 3, remediation of known ageing aircraft structural issues and conduct of an Ageing Aircraft Systems Audit to identify age-related deterioration (including corrosion) and defects of the aircraft, weapons and support systems that may require remediation prior to the planned withdrawal date.

The primary focus for 2011 will be on implementation of the Hornet Structural Assurance Consolidation Program, as well as achievement of significant savings across all elements of sustainment as part of the SRP, while ensuring Air Force capability requirements continue to be met.

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

The fleet of 19 Orion aircraft and the significant ground-based training facilities continue to progress through a program of key systems upgrades to improve the supportability and capability of major systems. The weapons system continues to require management focus to address increased deeper maintenance and obsolescence costs associated with an ageing aircraft. The majority of the fleet has reached its structural safe design life and entered the aircraft safety-by-inspection program, comprising targeted additional structural inspections, repairs or structural element replacements.


189

During 2011-12 a further three aircraft will complete the safety-by-inspection program. Additionally, the Capability Assurance Program Phase 1 and Radar Processor - Advanced major upgrades will enter the modification incorporation phase. To mitigate the pressures on operational aircraft availability of the upgrades, a substantial maintenance program re-engineering effort is planned for completion by the end of 2011. This re-engineering will optimise aircraft deep maintenance while preserving safety and capability consistent with SRP outcomes.

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

Twenty-four F/A-18F Block II Super Hornet aircraft are progressively being introduced to service over the period March 2010 to October 2011. Fifteen aircraft have been delivered to date. Aircraft availability and serviceability continues to exceed performance requirements.

Two of the three FMS programs have been established to provide logistics support, with the third and final case established in April 2011. The focus for 2011-12 will be the maturing of FMS programs and commercial contracts as well as the development of the follow-on Aircraft Support Contract for the sustainment of the increasing numbers of delivered Super Hornets and associated flying rate of effort.

Lead-in Fighter Hawk 127 Weapons System

Thirty-three Hawk 127 aircraft and training devices are sustained through a single prime contract. This is a performance-based in-service support contract covering all support other than the operational maintenance performed by the Air Force. The major challenge in the future is to achieve a more cost effective support solution to meet SRP objectives. Closer working relationships between Air Force, the DMO and the prime contractor have been fostered to facilitate a deep and enduring reform program.

C-130J Weapons System

The C-130J fleet consists of 12 aircraft and one Level 5 simulator. The C-130J aircraft are supported through two major performance based contracts, one with Standard Aero Limited covering the propulsions system, and the other with Australian Aerospace providing deeper maintenance, engineering and logistics support to the aircraft.

In 2011-12, the major focus for support of the C-130J fleet will continue to be assuring the availability of spares over the extended supply lines to the aircraft deployed on operations, while also maintaining in-country aircraft availability. Continued remediation of wear and tear caused by the harsh operating environment experienced by deployed aircraft will continue to place pressure on maintenance support and the maintenance budget, particularly for the propulsions system. All support arrangements will continue to be examined in 2011-12 to identify further opportunities to achieve sustainable cost of ownership reductions, and improve supply line efficiency and contribute to delivery of the SRP.

C-17 Heavy Air Lift

The Australian C-17 fleet consists of four aircraft, with a fifth aircraft being acquired during 2011-12. The fleet is based at RAAF Base Amberley in Queensland and is operated by Number 36 Squadron. Primary support is provided through FMS programs with the US Air Force. Australia participates in these arrangements as a member of a world-wide global fleet to obtain significant cost advantages by sharing fixed costs and ensuring global interoperability.

During 2011-12, the focus will be on integrating the fifth aircraft into the fleet, continuing to provide savings in collaboration with the US Air Force and other partners, and initiating a reform of support activities conducted in Australia to build national capability, identify savings and enhance operational capability.


190

C-130H Weapons System

The 12 C-130H aircraft and the C-130H full flight simulator are supported through a number of spares supply, component repair support, aircraft deeper maintenance, and engineering services contracts. Seven of the aircraft are in active service and the remaining five have been placed in preservation maintenance in the warehouse.

The C-130H deeper maintenance program will continue to be closely managed throughout 2011-12 to constrain the cost of emerging ageing aircraft issues, such as fatigue and corrosion. Support arrangements for aircraft deeper maintenance and propulsions system support will be reviewed for further opportunities to contribute to delivery of the SRP.

Electronic Systems

The sustainment of electronic systems is managed in 20 System Program and System Support Offices (SPO/SSO). These offices cover command and control systems, communications, satellites and tactical interoperability, airspace surveillance and control systems and electronic warfare systems. A whole of division plan was developed in 2010 to implement SRP reforms. It identified over 200 initiatives across 22 product schedules managed by the Division. Capability and cost base lining for 11 MSAs completed to date, with an additional three MSAs currently in progress, and further MSAs planned for analysis later in 2011. ESD's SRP program is now shifting focus to detailed cultural reform, this will commence with the establishment of a cultural survey baseline in 2011.

Details of sustainment activities scheduled for 2011-12 include:

• Communications:

- analysing, planning and executing a major fleet transition phase as the first of the JP2072 (future Combat Net Radio) equipment is delivered and rolled out from May 2011

- participating in the Army Enhanced Equipment Pool (EEP) pilot for 18 months from August 2011

- phase in of new support contract for Harold E Holt, very low frequency communication

- development of work packages under the Services Support Contract for the modernised High Frequency Network.

• Command Support Systems: Investigating options for the Next Generation Deployable Local Area Networks (DLAN) which will leverage the opportunities afforded by technological advancement and improved hardware being developed by commercial sources.

• Electronic Warfare: Rationalising system configurations and contracting for the support and main-tenance of ADF Large Aircraft Infrared Countermeasures Systems (LAIRCM), covering multiple current and future Airborne programs.

• Surveillance and Control:

- continuing engagement with Air Services Australia on the Government's joint civil and military aviation initiatives

- transition of new transportable air operations towers, tower visual simulators, and pilot monitoring facilities to sustainment

- transition Project Vigilare to sustainment support, including significant remediation of the current Logistics Support Contract

- remediating discrete obsolescence issues affecting the Woomera Test Facility range control safety system

- bedding down the newly extended Wide Area Surveillance (WAS) support contracts

- identifying further efficiencies and remediating obsolescence issues effecting Wide Area Surveillance

• Satellites and Tactical Interoperability.


191

• Continuing sustainment activities in support of Defence's Fixed Satellite Communications Ground Infrastructure sites in Australia.

• Development of support concepts for narrowband satellite communications and project equipment provisioned under the WGS partnership with the United States.

Electronic Systems Product

Wide Area Surveillance Capability

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

Due to the developmental heritage of the Alice Springs Radar, there are challenges with respect to obsolescence and ageing facilities issues at this site. These issues are being managed as they arise in concert with a suite of capability upgrades to all three radars that are being delivered progressively over 2010-12 through a mix of major and minor projects.

The first phase of a program to achieve cost savings in line with the SRP target is anticipated to be completed in 2011-12. Opportunities for the achievement of an enduring cost conscious culture have been embedded in the program and will form the basis of future phases.

Explosive Ordnance

Explosive Ordnance Division is responsible for the sustainment of all complex guided weapons and non-guided munitions for the ADF. The Division operates major missile and torpedo maintenance facilities on the east and west coast of Australia for the conduct of in-house support for guided weapons. The Division also manages the national inventory of munitions and is the contract authority for domestic munitions manufacturing under the Strategic Agreement for Munitions Supply.

Key objectives for sustainment in 2011-12: include:

• issue of an Invitation To Register for the future arrangements for the domestic production of muni-tions

• continued focus to deliver sustainable savings in munitions procurement and management and guided weapon support under the SRP

• migration of all General Stores Inventory and Repairable Items from the EO inventory system, Computer System Armament (COMSARM), to the Defence MILIS

• the delivery of New Policy Proposal funded works at the Mulwala propellant and explosives facil-ity, in conjunction with the Defence Support Group, to manage risks to health, safety and the envi-ronment

• further development of inventory performance reporting capabilities within the Division and improved Key Performance Indicators for incorporation into our MSAs

• continued roll-out of the Explosive Ordnance Division professionalisation framework, including workplace competency certification, broad banding for guided weapon maintainers and a postgrad-uate program for explosive ordnance engineering.

Explosive Ordnance Product

Explosive Ordnance -Navy, Army, Air Force

The Division's ability to provide munitions products in the required quantities to Navy, Army and Air Force has improved over the last 12 months, due to a general easing in demand on global supply chains and manufacturers. This easing of supply constraints, together with enhancements in internal processes, has led to improvements to the health of the explosives ordnance inventory. These advances will continue in 2011-12, aided by ongoing improvements to production planning for the domestic manufacturing facilities.


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In 2011-12 guided weapons sustainment activities are primarily focussed on maintenance and recertification of the in-service inventory. The minor requirements to support current operations have allowed availability levels to be maintained or improved over recent times. This is expected to continue during 2011-12. Opportunities to improve missile availability and lower sustainment costs are being progressed in close consultation with the respective Services, industry partners and key suppliers.

Helicopter Systems

Helicopter Systems Division provides through-life support to eight rotary wing weapons systems through an Aviation System Program Office (SPO) based at Nowra for Navy Aviation and another SPO based at Oakey for Army Aviation. This will reduce to seven weapon systems when the Sea King is withdrawn from service in December 2011. The SPOs provide fleet-wide engineering, repair parts, contract management for deeper level maintenance and replacement of ageing and obsolescent aircraft equipment for the ADF's helicopters with the exception of the ARH and MRH-90. The main SPO functions for ARH and MRH-90 are contracted directly to Industry and are managed from Brisbane. In addition, a combined project and sustainment team to manage the introduction and through life support of Unmanned Aerial Vehicles (UAV) has been established.

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

For 2011-12 the major sustainment objectives include:

• providing ongoing support to operationally deployed helicopters and UAV

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

• maturing the support arrangements for the Tiger ARH and MRH-90 helicopters as they are delivered

• completion of disposal of Iroquois and disposal planning and execution for Sea King helicopters.

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

Helicopter System Products

Multi Role Helicopter

Thirteen of the 46 aircraft have been accepted so far. The ADF ceased acceptance of MRH-90 aircraft on 22 November 2010 until known capability deficiencies are rectified by the contractor, Australian Aerospace, or acceptable commercial arrangements are agreed.

MRH-90 flying rate of effort has been significantly less than expected due to a number of technical and support issues and this has resulted in delays to aircrew training and certification. Accordingly the primary sustainment objectives for 2011-12 are to increase the flying rate of effort and improve the support arrangements.

S70A-9 Black Hawk Weapons System

The fleet of 34 Black Hawk helicopters contributes to the airmobile and special operations helicopter capabilities for Army. Selected upgrades will continue to be introduced during 2011-12 to address system obsolescence and to ensure operational viability is maintained until the Black Hawk is replaced by the MRH-90.


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Armed Reconnaissance Helicopter Weapons System

Twenty of the 22 aircraft have been accepted and flown in excess of 7,700 hours. Eleven of the mature configuration aircraft have been fielded in Army's 1st Aviation Regiment, Darwin. Five of the mature configuration aircraft are being used for training at the Army Aviation Training Centre, Oakey, with the remainder of the aircraft accepted to date undergoing retrofit to the mature configuration in Australian Aerospace's production facilities in Brisbane.

Further development of the Tiger ARH capability in Army has been adversely affected by sub optimal flying rate of effort and technical issues with the helmet mounted sight and display for full night operations.

The primary sustainment objectives for 2011-12 are for the DMO and prime contractor, Australian Aerospace, to improve the support arrangements to achieve a satisfactory flying rate of effort for Tiger.

S70B-2 Seahawk Weapons System

The fleet of 16 Seahawk helicopters contributes to Navy's anti-surface and anti-submarine warfare capabilities. The Seahawk is supported through a combination of maintenance contracts primarily with BAE Systems Australia and Asia Pacific Aerospace, Navy in-unit maintenance, and support from the helicopter manufacturer Sikorsky.

During 2011-12, the primary objective is to support the Seahawk fleet through the current obsolescence issues to maintain sufficient availability until the aircraft are replaced by AIR 9000 Phase 8 while generating strategic reforms to drive cost reductions through implementation of efficiencies in contracted maintenance activities.

Land Systems

Land system Division is responsible for the sustainment of the following land systems managed in conjunction with Army Headquarters and Joint Health Command as the lead capability managers:

• armoured fighting, combat support and field vehicles

• engineer, surveillance and simulation systems

• weapon systems, from small arms to missile systems

• health systems, medical and dental equipment

• ADF clothing and the soldier combat ensemble

• consumable stores such as combat rations.

During 2011-12 the key sustainment objectives will be:

• Supporting operations. The Division supports deployed forces and refurbishes equipment return-ing from overseas deployments to ensure its availability for future operations. Land Systems also provide humanitarian assistance both domestically and internationally, as directed by Government.

• Continued reform of the procurement and supply of ADF Clothing and selected personal equipment through initiatives such as the 'MyDefenceGear' Project, the Multicam combat uniform, and 'Soldier Combat Ensemble', the new integrated body armour and load carriage solution. On 19 November 2010, the 'MyDefenceGear' Project was announced and will implement agreed recommendations from the Whalan and Lewincamp Reviews to reform the procurement and supply of ADF Clothing and selected personal equipment. It is expected that the majority of the recommendations will be actioned throughout 2011 and 2012.

• Continuing development and implementation of sustainment improvements. Close co-operation with key stakeholders has seen further development of robust Strategic Reform initiatives and business efficiencies, focused on demand management, supply management and internal process improvement. Land System Division is harnessing a range of inventory management initiatives and sustainment improvement activities to deliver improved levels of service. Land system sustainment improvements include:


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- comprehensive equipment fleet reviews with Defence Capability Managers

- equipment pool trials aimed at reducing the total cost of ownership

- vehicle/equipment fleet servicing analysis to achieve cost saving without a reduction in availability, functionality or safety

- original equipment manufacturer engagement to reduce through-life support costs.

Land System Products

General Service B Vehicle Fleet

The current B Vehicle fleet of approximately 12,000 vehicles is predominantly comprised of unprotected Land Rover light vehicles and trailers, Unimog Medium Trucks and R-series Mack trucks and trailers. Minor fleet elements include motorcycles, all-terrain vehicles and ceremonial vehicles.

The primary focus for sustainment support in 2011-12 will continue to be the provision of enhanced protection levels for vehicles deployed on operations - specifically the procurement of additional up-armoured cabins for Unimog and Mack vehicles as part of a planned rotation of the vehicles currently deployed on operations.

It is expected that the fleet will begin to realise potential savings resulting from the optimisation of maintenance for the majority of its vehicles. Logistic support contracts are being negotiated that will ensure that the major vehicle systems fleets are supported during the last years of the fleet's life.

A plan is in place to identify and dispose of approximately 2,000 vehicles, trailers and motor bikes that have been identified as surplus and directed for disposal.

ADO Commercial Vehicle Fleet

The commercial vehicle fleet comprises approximately 6,100 commercial-off-the-shelf vehicles and trailers, including a small number of highly modified commercial-off-the-shelf vehicles. The fleet ranges from passenger sedans through to heavy rigid trucks and touring coaches.

The procurement of 1,146 vehicles and trailers is planned for 2011-12. Significant SRP initiatives for this product include extending the life of vehicles and removing vehicle from the fleet that are either under-utilised or surplus to requirements.

Maritime Systems

The Maritime Systems Division (MSD) provides through life support services to the Navy and Army maritime capability for predominantly Australian unique ship classes with a very diverse product baseline in low volume quantities.

The overall sustainment concept is to support maritime capability through cost effective materiel design, maintenance engineering and logistic support to platforms, equipment and systems. The provision of these sustainment services is under a structure of SPOs, that are collocated regionally with the Navy Forces and Groups by ship class, that manage the delivery of services through a variety of outsourced commercial contracts.

The key objectives for sustainment during 2011-12 include:

• Implementation of effective and sustainable SRP initiatives such as the Anzac CapabilityImprovement Program, and the Major Fleet Unit Repair and Maintenance Reform Program.

• The conduct of life type extension studies for most MSD products to inform the capability life cycle.

• Improvement of the configuration management and maintenance baseline of major surface ships.

• The support of ageing amphibious and afloat support ships through the development and implementation of a remediation plan for the platform maintenance systems, and a review and


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overhaul of the project management, organisational structure, and engineering processes of the System Program Office that manages sustainment of the Amphibious & Afloat vessels.

• Implementation of Smart Sustainment review outcomes and in-service support arrangements to improve efficiency of the Mine Hunter

• Achieve the final upgrades of Armidale Class Patrol Boats and Operational Release by Navy across the fleet of 14 Patrol Boats by close of 2011.

• Preparations for the introduction into service of the LHD and AWD ships.

Maritime System Products

Fuels and Lubricants-Navy, Army, Air Force

Petrol, oil and lubricant products are provided to Defence operational and support elements and visiting foreign forces. Planned outcomes for 2011-12 include the implementation of revised contracting arrangements with industry for fuel; the replenishment of fuel stocks to meet the requirements of the ADF and the identification of optimal operational and reserve holding requirements for bulk facilities across the ADF.

Anzac class frigate

The ANZAC fleet consists of 8 frigates. The 2011-12 planned outcomes include the delivery of the Defence Strategic Reform Program Smart Sustainment assessment of the ANZAC class; establishing a sound integrated master schedule to improve the coordination of approved and planned new capability upgrade projects with sustainment activity; implementation of the Major Fleet Unit Repair and Maintenance Reform Program; and rollout of inventory management reforms, while providing ongoing sustainment of materiel capability to meet Navy's operational requirements.

Adelaide class frigate

The support objective is to maintain the materiel capability of the Adelaide class frigate through the provision of materiel support and ongoing maintenance of the four ships and associated equipment, systems and operator training facilities. The 2011-12 planned outcome is transitioning the FFG Upgrade capability in-service support to a steady state for ongoing sustainment of materiel capability to meet Navy's operational requirements.



Airborne Early Warning & Control

The five year cost-plus fixed-fee contract with The Boeing Company has operated successfully for one year in the provision of total logistics support to the AEW&C platform. The principle subcontractors (Northrop Grumman Corporation and Boeing Defence Australia) are on contract and they are providing valuable services in support of Air Force's initial operations under a Special Flight Permit.

The focus in 2011-12 will be the provisioning of the remaining spares and support equipment; the management of technical changes to fleet aircraft as design changes under the incremental acceptance strategy; and the establishment of Early Warning support arrangements. IOC will be achieved when sufficient crews have been trained in-country, initial levels of aircraft availability are achieved to the required airworthiness standard, and adequate support arrangements are in place to support Service Release of the AEW&C capability. The focus remains on achieving IOC by the end of 2011 but some risk is evident.

, Anzac and Hydrographic fleet of vessels.


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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 for platform systems and combat systems, through agreements with industry partners including ASC Pty Ltd, Raytheon Australia, Thales and BAE Systems.

The planned outcome for 2011-12 is the delivery of reliable platform availability to Navy. This will be effected through reform initiatives underway to stabilise the Integrated Master Schedule built on a rationalised 11-year maintenance and operating cycle, supported by the implementation of performance-based in-service support contracts to drive increased industry efficiency and effectiveness. Resourcing priority will also be given to improving the management of obsolescence and supply support system deficiencies, and the ongoing remediation of submarine rescue launch and recovery system. Completion of these initiatives is critical to the determination of the logistic cost of ownership.


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Table 92: Program 1.3 Provision of Policy Advice a

Program 1.3: Provision of Policy Advice and Management Services


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

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

The National Partnership on the School Pathways Program will provide $5.8m from 2010-11 over five years to South Australia and Western Australia. The school pathway programs are designed to increase the pool of young people ready to move from school into further education and apprenticeships and part-time work/study combinations in Defence industry. The programs will also increase employer awareness of options for recruiting young people and the value to business of doing so.


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 $116.0m in 2011-12 representing one per cent of the DMO's total expenses.

The planned resource use for Program 1.3 primarily includes:

• direct appropriation of $104.5m relating to policy advice and management services

• resources received free of charge from Defence and ANAO of $10.5m

• other resources of $1.0m.

The expenses relating to this program generally show an increasing trend except for a decrease in 2012-13 reflecting the Government decisions relating to this program.


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 following text.


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



Departmental appropriation 79,367 104,471 98,497 102,669 102,244Special Accounts 1,025 1,015 1,021 1,025 1,031Expenses not requiring appropriation

in the Budget year 10,354 10,556 10,764 10,977 11,195Total program expenses 90,746 116,042 110,282 114,671 114,470

nd Management Services


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

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

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

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

Major procurement policy initiatives for 2011-12 include:

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

• developing a new Australian Defence Contracting suite of tendering and contracting templates (including performance based and incentive models) and new internal procurement process templates

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

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

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

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

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

To achieve this measure, performance outcomes for 2011-12 will include delivering the industry outcomes framed by the White Paper, the Public Defence Capability Plan and the Defence Industry Policy Statement. The DMO will monitor the level of expenditure with local contractors to understand achievement against the Government's policy of growing local Defence industry by ensuring that as much of the Defence budget as reasonably practicable is spent in Australia. In addition, the DMO will continue to analyse the health of Priority Industry Capabilities (PICs) in the Australian industrial base to provide industry with specific direction on requirements.

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

• the Defence Industry Innovation Board to oversight and better coordinate Defence's industry assistance programs

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

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

• programs to improve Australian Defence industry productivity including:

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


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

- the Priority Industry Capability (PIC) Innovation Program that will provide repayable matching grants mainly to Small to Medium Enterprises for innovative PIC related activities.

• support for the Defence Materials Technology Centre that is a joint venture between Defence industry, universities and government research agencies that focuses on working collaboratively to enhance Defence capability by developing new materials and manufacturing technologies

• the ongoing promotion of Australian-based companies through the expansion of the DMO's ePortal that allows industry to register their capabilities in which more than 1300 local companies have taken up this opportunity to date

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


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Section 3: Explanatory Tables and Budgeted Financial StatementsSection 3 presents explanatory tables and budgeted financial statements which provide a comprehensive overview of agency finances for the 2011-12 budget year. It explains how budget plans are incorporated into the financial statements and provides further details of the reconciliation between appropriations and program expenses, movements in administered funds, special accounts and government Indigenous expenditure.

3.1 Explanatory tables

3.1.1 SPECIAL ACCOUNTS

Special Accounts provide a means to set aside and record amounts used for specified purposes. Special Accounts can be created by a Finance Minister's Determination under the Financial Management and Accountability Act or under separate enabling legislation. Table 93 shows the expected additions (receipts) and reductions (payments) for each account used by DMO.

Table 93: Estimates of Special Account Flows and Balances

Notes(A) = Administered(D) = Departmental(S) = Special Public Money

3.1.2 AUSTRALIAN GOVERNMENT INDIGENOUS EXPENDITURE

The 2011-12 Australian Government Indigenous Statement is not applicable to the DMO as it has no specific Indigenous expenditure.

3.1.3 GRANTS

The DMO's grants are paid from departmental funds provided by direct appropriation from the Government and are approved by the Minister for Defence. The approved budget to date for the DMO's grants program is $28.7m.

The DMO's planned grants for 2011-12 are primarily, payments which organisations or individuals may receive after satisfying eligibility and/or reporting requirements.

Ope ning Re ce ip ts Paym e nts Clos ingbalance balance2011-12 2011-12 2011-12 2011-122010-11 2010-11 2010-11 2010-11

Outcom e $'000 $'000 $'000 $'000Def ence Materiel Spec ial

A ccount (A & D) 1 660,931 11,781,074 11,770,773 671,232501,560 10,995,922 10,836,551 660,931

Serv ices f or Other Entities and Trus t Moneys - Def ence Materiel Organisation (S) 1 - - - -

- - - -

Total Spe cial Accounts 2011-12 Budge t e s tim ate 660,931 11,781,074 11,770,773 671,232

Total Spec ial Accounts2010-11 es timated ac tual 501,560 10,995,922 10,836,551 660,931


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Table 94 lists the DMO's approved grants by approved expenditure for 2011-12. The table is followed by a short description for each program.

Table 94: Approved Grants for 2011-12

Note1. The 2010-11 Budget included $6.2m for Grants. But the implementation of the program has been delayed due to complexities around how best

to administer the program. t is now anticipated that the first round of grants will be made in the 2011-12 financial year.

Skilling Australia's Defence Industry (SADI)

The SADI program was established to generate additional skilled positions, up-skill existing employees and improve the quality and quantity of skills training in defence industry. Proposals are expected to demonstrate that they:

• target growth in professional and technical trades categories where current and future shortages are identified

• retain skilled employees

• address the current and long term growth requirements of industry

• demonstrate the commitment of the Company to increase their workforce skills base

• contribute to Defence capability.

Priority Industry Capability Innovation Program (PIC IP)

The PIC IP aims to provide more direct and more practical support to Australian companies, particularly subject matter experts in the form of repayable matching grants up to $4m for PIC IP related activities. Companies will be able to submit innovative proposals relating to one or more PIC IP's and seek funds to cover activities such as the acquisition of capital equipment to develop their capability or to develop a new application. Guidelines are currently being developed and the first round of applications is expected to be called in the second half of 2011.

Industry Skilling Program Enhancement (ISPE)

The ISPE package aims to promote skilling and career pathways within the Defence industry. The initiative sees the DMO work with ISPE package key stakeholders to expand the pool of skilled people in defence industry and enhance work and career pathways in the sector. The following elements of ISPE are grants:

• Masters in Systems Supporting Engineering, Professional Doctorate in Systems Engineering and the Advanced Manufacturing Schools Pathways Program

• the following grant programs provided by the Defence Industry Innovation Centre (DIIC, an ISPE initiative):

- Tailored Advisory Service Grants

- Researchers in Business Grants

- Workshops, Industry Intelligence and Networking Grants

- Defence Special Purpose Grants (a fourth grants program to be provided by the DIIC).

Estimated Budgetactual

2010-11 2011-12$'000 $'000

Skilling Australia's Defence Industry 8,500 12,253Priority Industry Capability Innovation Program[1] - 9,233Industry Skilling Program Enhancement 7,700 7,184Total 16,200 28,670


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3.2 DMO BUDGETED FINANCIAL STATEMENTS

3.2.1 Budgeted Financial Statements Tables

Table 95: Comprehensive Income Statement (Showing Net Cost of Services)(for the period ended 30 June)

Estim ated Budget Forw ard Forw ard Forw ardactual estim ate estim ate estim ate estimate

2010-11 2011-12 2012-13 2013-14 2014-15$'000 $'000 $'000 $'000 $'000

EXPENSESEmployee benefits 508,000 572,263 621,946 658,037 711,622Supplier expenses 9,391,836 10,523,649 9,323,292 10,604,724 11,911,745Grants 16,200 28,670 29,776 26,530 28,088Depreciation and amortisation 2,404 2,465 2,527 2,590 2,654Total expenses 9,918,440 11,127,047 9,977,541 11,291,881 12,654,109

LESS OWN-SOURCE INCOMEOw n-source revenueSale of goods and rendering of services 9,051,443 10,100,506 8,895,163 10,158,118 11,464,800Other 53,656 54,997 56,647 58,120 59,631Total ow n-source revenue 9,105,099 10,155,503 8,951,810 10,216,238 11,524,431

GainsOther 41,366 42,343 43,345 44,372 45,426Total gains 41,366 42,343 43,345 44,372 45,426Total ow n-source incom e 9,146,465 10,197,846 8,995,155 10,260,610 11,569,857

Net cost of (contribution by)services 771,975 929,201 982,386 1,031,271 1,084,252

Revenue from Government 847,282 929,201 982,386 1,031,271 1,084,252

Surplus (Deficit) 75,307 - - - -


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Table 96: Budgeted departmental balance sheet (as at 30 June)

Note1. Equity is the residual interest in assets after deduction of liabilities.

Table 97: Departmental statement of changes in equity—summary of movement(Budget year 2011-12)

Estim ated Budget Forw ard Forw ard Forw ardactual estim ate estim ate estim ate estim ate

2010-11 2011-12 2012-13 2013-14 2014-15$'000 $'000 $'000 $'000 $'000

ASSETSFinancial assets

Cash and cash equivalents 92,440 92,440 92,440 92,440 92,440Trade and other receivables 666,780 677,081 687,434 690,501 694,156

Total financia l assets 759,220 769,521 779,874 782,941 786,596

Non-financial assetsProperty, plant and equipment 7,901 8,221 8,549 8,885 9,230Intangibles 397 478 561 646 734Other 1,404,821 1,404,821 1,404,821 1,404,821 1,404,821

Total non-financia l assets 1,413,119 1,413,520 1,413,931 1,414,352 1,414,785Total assets 2,172,339 2,183,041 2,193,805 2,197,293 2,201,381

LIABILITIESPayables

Suppliers 1,195,059 1,195,059 1,195,059 1,195,059 1,195,059Grants 4,548 4,548 4,548 4,548 4,548Other 306,137 308,893 309,674 312,118 314,586

Total payables 1,505,744 1,508,500 1,509,281 1,511,725 1,514,193

Provis ionsEmployee provisions 173,760 181,706 191,689 192,733 194,353

Total provisions 173,760 181,706 191,689 192,733 194,353

Total liabilities 1,679,504 1,690,206 1,700,970 1,704,458 1,708,546

Net assets 492,835 492,835 492,835 492,835 492,835EQUITY[1]

Contributed equity 155,368 155,368 155,368 155,368 155,368Retained surplus

(accumulated def icit) 337,467 337,467 337,467 337,467 337,467

Total Equity 492,835 492,835 492,835 492,835 492,835

Retained Asset Other Contributed Totalearnings evaluation reserves equity/ equity

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

Opening balance as at 1 July 2011Balance carried forw ard f rom

previous period 337,467 - - 155,368 492,835Adjustment for changes in

accounting policies - - - - -Adjusted opening balance 337,467 - - 155,368 492,835

Surplus (def icit) for the period - - - - -

Total comprehensive income - - - - -

Estim ated closing balanceas at 30 June 2012 337,467 - - 155,368 492,835


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Table 98: Budgeted departmental statement of cash flows (for the period ended 30 June)

Table 99: Departmental Capital Budget Statement

Note1. Includes the following sources of funding:

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


2010-11 2011-12 2012-13 2013-14 2014-15$'000 $'000 $'000 $'000 $'000

OPERATING ACTIVITIESCash rece ived

Goods and services 9,224,233 10,090,205 8,884,810 10,155,051 11,461,145Appropriations 847,282 929,201 982,386 1,031,271 1,084,252Net GST received 709,880 694,870 615,515 699,954 786,402Other 53,656 54,997 56,647 58,120 59,631

Total cash received 10,835,051 11,769,273 10,539,358 11,944,396 13,391,430

Cash usedEmployees 499,026 561,561 611,182 654,549 707,534Suppliers 9,638,777 10,481,306 9,279,947 10,560,352 11,866,319Grants 16,200 28,670 29,776 26,530 28,088Net GST paid 638,341 694,870 615,515 699,954 786,402Other 39,911 - - - -

Total cash used 10,832,255 11,766,407 10,536,420 11,941,385 13,388,343Net cash from (used by)

operating activities 2,796 2,866 2,938 3,011 3,087

INVESTING ACTIVITIES

Cash usedPurchase of property, plant

and equipment 2,796 2,866 2,938 3,011 3,087Total cash used 2,796 2,866 2,938 3,011 3,087Net cash from (used by)

investing activities -2,796 -2,866 -2,938 -3,011 -3,087

Net increase (decrease)in cash he ld - - - - -Cash and cash equivalents at the

beginning of the reporting period 92,440 92,440 92,440 92,440 92,440Cash and cash equivalents at the

end of the reporting period 92,440 92,440 92,440 92,440 92,440


2010-11 2011-12 2012-13 2013-14 2014-15$'000 $'000 $'000 $'000 $'000

PURCHASE OF NON-FINANCIALASSETSFunded internally f rom

departmental resources[1] 2,796 2,866 2,938 3,011 3,087TOTAL 2,796 2,866 2,938 3,011 3,087

RECONCILIATION OF CASHUSED TO ACQUIRE ASSETSTO ASSET MOVEMENT TABLE

Total purchases 2,796 2,866 2,938 3,011 3,087Total cash used to

acquire assets 2,796 2,866 2,938 3,011 3,087


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Table 100: Statement of Asset Movements (2011-12)

3.2.2 Analysis of Budgeted Financial Statements

Income Statement

The DMO is budgeting for a break-even operating result for 2011-12, with total income and expenses of $11,127.0m. Of this amount, the DMO will earn $10,139.6m (91.1 per cent) from Defence, $929.2m (8.4 per cent) through direct appropriation from Government, and $58.2m (0.5 per cent) from other sources (including $55.0m from foreign governments).

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

The income for 2011-12 is expected to be $1,133.3m (11.3 per cent) higher than the 2010-11 estimated actual. The variation is mainly the result of the increase in program activities as follows:

• Program 1.1 (Management of Capability Acquisition) $5,326.4m - increase of $362.5m (7.3 per cent) largely driven by increases to the estimate for projects yet to be approved and transferred to the DMO for delivery

• Program 1.2 (Management of Capability Sustainment) $5,684.6m - increase of $767.1m (15.6 per cent). This increase reflects the funding for:

- new platforms or capabilities having entered service

- increased funding for support to operations

- a higher provision for Net Personnel and Operating Costs for capabilities anticipated to be entering service

- the establishment of product price estimates over and above anticipated 2010-11 estimated outcomes

• Program 1.3 (Provision of Policy Advice and Management Services) $116.0m - increase of $3.7m (3.3 per cent).

Asset CategoryOther property, Intangibles Total

plant andequipm ent

$'000 $'000 $'000As at 1 July 2011Gross book value 25,447 27,418 52,865Accumulated depreciation/amortisation

and impairment 17,546 27,021 44,567Opening net book balance 7,901 397 8,298

CAPITAL ASSET ADDITIONSEstim ated expenditure on

new or replacem ent assetsBy purchase - internal departmental resources 2,312 554 2,866Total additions 2,312 554 2,866

Other m ovem entsDepreciation/amortisation expense 1,992 473 2,465As at 30 June 2012Gross book value 27,759 27,972 55,731Accumulated depreciation/amortisation

and impairment 19,538 27,494 47,032Closing net book balance 8,221 478 8,699


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The movements in estimated income and expenses between years reflects the approved work transferred to the DMO for delivery in those years. The decrease in estimated income and expenses in 2012-13 is due to a reduction in planned expenditure for several large approved acquisition projects as equipment is delivered and enters service. Most notable of these is Amphibious Deployment and Sustainment - JP2048 Ph4A/4B. The increase beyond 2012-13 reflects the current expenditure estimates for not yet approved acquisition projects that are part of the Defence Capability Plan.

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

Balance Sheet

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

Statement of Cash Flows

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

Table 101: Schedule of budgeted income and expenses administered on behalf of Government (for the period ended 30 June)

Table 102: Schedule of budgeted assets and liabilities administered on behalf of Government (as at 30 June)


2010-11 2011-12 2012-13 2013-14 2014-15$'000 $'000 $'000 $'000 $'000

INCOME ADMINISTERED ONBEHALF OF GOVERNMENT

Revenue

Non-taxation revenueInterest 1,500 1,500 1,500 1,500 1,500

Total non-taxation revenue 1,500 1,500 1,500 1,500 1,500Total revenues adm inis tered

on behalf of Governm ent 1,500 1,500 1,500 1,500 1,500

Total incom e adm inis teredon behalf of Governm ent 1,500 1,500 1,500 1,500 1,500


2010-11 2011-12 2012-13 2013-14 2014-15$'000 $'000 $'000 $'000 $'000

ASSETS ADMINISTERED ON BEHALF OF GOVERNMENT

Financial assetsReceivables 162 162 162 162 162

Total financia l assets 162 162 162 162 162

Total assets adm inistered on behalf of Governm ent 162 162 162 162 162

3.2.3 Aministered Budgeted Financial Statements Tables


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Table 103: Schedule of budgeted administered cash flows (for the period ended 30 June)Estim ated Budget Forw ard Forw ard Forw ard

actual estim ate estim ate estim ate estim ate2010-11 2011-12 2012-13 2013-14 2014-15

$'000 $'000 $'000 $'000 $'000OPERATING ACTIVITIESCash rece ived

Interest 1,500 1,500 1,500 1,500 1,500Total cash received 1,500 1,500 1,500 1,500 1,500

Net cash from (used by) operating activities 1,500 1,500 1,500 1,500 1,500

Net increase (decrease) in cash held 1,500 1,500 1,500 1,500 1,500Cash and cash equivalents at

beginning of reporting period - - - - -Cash to Of f icial Public Account for:

- Transfers to other entities(Finance - Whole of Government) 1,500 1,500 1,500 1,500 1,500

Cash and cash equivalents at endof reporting period - - - - -


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DMO NOTES TO THE FINANCIAL STATEMENTS

Budgeted Financial Statements

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

DMO Departmental Revenue

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

DMO Departmental Expenses

Employees

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

Suppliers

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

Depreciation and Amortisation

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

DMO Departmental Assets

Departmental Assets - Financial

The primary financial assets are cash and receivables.

Departmental Assets - Non-financial

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

DMO Departmental Liabilities

Departmental Liabilities - Provisions

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

Departmental Liabilities - Payables

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

Documents

defence materiel organisation agency resources and planned