Tue, 8 Feb 2005

Burton welcomes Controller and Auditor General's report on the Light
Armoured Vehicles

Mark Burton, Minister of Defence has today welcomed the release of the Controller and Auditor General's (OAG) second report on the acquisition and introduction into service of the Light Armoured Vehicles (LAVs). (Ministry Of Defence And New Zealand Defence Force: Further Report On The Acquisition And Introduction Into Service Of Light Armoured Vehicles).

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"The report makes some valid comments and helpful recommendations relating to areas where New Zealand Defence Force and Ministry of Defence can continue to improve and strengthen," he said.

The report notes that the LAV project has been very successful with 105 vehicles delivered on time and within budget and that the project continues to meet its milestones including the first LAV Company achieving Directed Level of Capability by Dec 2004.

It acknowledges the significant positive changes in acquisition and project governance processes that Government and Defence have implemented since the August 2000 Cabinet paper (which contained options for the purchase of the LAVs), The Government Defence Statement of May 2001 (which detailed the Government's requirements of the Army) and the first OAG report (August 2001). These include the introduction of the Defence Long Term Development Plan (June 2002), the Defence Force Order for Life Cycle Costing analysis (September 2002) and the Capability Management Framework (April 2004).

The report does raise the question as to whether additional approval should have been sought from Cabinet to further develop the army operational concept for the use of the LAVs.

"The operational concept and location of the LAVs is clearly an operational matter for the army, and I was kept appropriately informed" Mark Burton said.

The OAG also commented on the number of vehicles acquired. Senior military advisors' consistent and considered advice however states that the army will require all 105 NZLAVs to deliver the required range and level of operational capabilities.

"The Army is now well on the way to being equipped and trained to meet the Government's expectations. I am confident that it can provide motorised capability for the range of deployments New Zealand is and may in the future be committed to, as envisaged when the decision was made to purchase 105 LAVs." Mark Burton said.

Comment on Recommendations The report makes nine recommendations.

1 - "The full effect of the personnel shortage in relation to the LAV project be assessed. This should include implications for LAV project goals, and for non-LAV units. This assessment information should be periodically updated and reported to the Executive Capability Board" o This recommendation has been superseded by the NZDF Personnel Planning Model (PCPM) Review with the results included in the Defence Capability and Resourcing Review. Until the outcome of the DCARR is confirmed, Army's personnel priority will continue to be to meet the NZLAV Outputs required

2 - "Early and full consideration be given to all financial implications of proposed military capability acquisitions. These implications need to be factored into proposals and supporting documents seeking Cabinet approval". o This has been done for all projects on the Long Term Development Plan that are submitted to Government at various stages of the approval process. This is also a requirement to provide capital and operating costs through the life of the capability under the Capability Management Framework.

3 - "Thorough capability planning be undertaken, under the Capability Management Framework, to identify all of the personnel implications associated with the acquisition of a new military capability. The personnel implications should be based on robust and realistic assessments, and be clearly expressed in proposals and supporting documents seeking Cabinet approval for an acquisition" o This is now undertaken.

4 - "When planned use of a new capability changes from what was approved by Cabinet, the reasons for, and the nature of the changes, are clearly documented and returned to Cabinet for approval" o This occurs when it is an issue relating to Government policy and/or which potentially changes the original scope and /or outcome of the project. o Operational matters such as appropriate location of equipment and operational concepts are the responsibility of the Chief of Defence Force.

5 - "That the Capability Management Framework be amended to ensure that all the important issues relating to military capability acquisition projects are brought to the attention of the Executive Capability Board for discussion. This should happen even for issues that are the sole responsibility of one of the Chief Executives"

o While "important issues" have not been defined by OAG, all issues that could be a risk to the project are reported monthly at the Integrated Capability Management Committee (which supports the ECB). These in turn are a standing agenda item for the monthly ECB meeting. Any other related issues are discussed irrespective of the Chief Executive's "sole" responsibilities to ensure coherency across the Defence organisation.

6 - 'Reservations and risks relating to early funding estimates for any project items be explicitly stated in papers seeking Cabinet approval, in order to give decision-makers the best and most complete information possible. These risks should be regularly reviewed and estimates updated periodically". o Under the Capability Management Framework there is a complete section, which deals with project risk. There is a specific requirement to include project risk in the business case to Cabinet. The risk review process is an integral part of the project management process.

7 - 'For major military capability acquisition projects, the analysis undertaken to support proposals put to Cabinet for approval be subject to independent review. This review should examine the financial and technical details of the proposal. In cases where an independent review is not considered necessary, the reasons why not should be identified'.

o The Capability Management Framework process provides the structure for and review of the financial and technical aspects of major projects. Where required, independent/external advice is sought on a range of projects or for specific aspects of them eg. for independent costing and technical feasibility advice such as that provided for the P3 and C130 upgrade projects respectively.

o Defence also operates risk registers for major projects using independent risk consultants experienced in this field

8 - 'Every effort be made to negotiate any Logistic Support Agreement (LSA) concurrently with the prime contract, when seeking to secure support services for future military capability acquisitions'.

o This has been implemented. Experience from the LAV LSA was applied to good effect with the Light Operational Vehicle LSA.

9 - 'Life cycle costing analysis be completed for the LAV project as required by the CMF, including a calculation of the whole-of-life costs for 105 LAVs. These costs should continue to be monitored throughout the life of the LAV in order to assist with re-adjusting operating baselines.

o This has been implemented where possible, noting the difficulty in forecasting future technological costs for leading edge technology. Separate cost capture is in place for LAV and Army will have accurate costs per kilometre in the next two years.

o In the interim, USA and Canadian data provide a costing framework.

ENDS

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