Summary and recommendations
This is our second report into issues relating to the acquisition of 105 Light Armoured Vehicles (LAVs) for the New Zealand Army (the Army).
In our first report Ministry of Defence: Acquisition of Light Armoured Vehicles and Light Operational Vehicles in August 2001, we highlighted problems within the Defence agencies – in this context, the Ministry of Defence (MoD), the New Zealand Defence Force (NZDF), and the Army – in the areas of governance, relationships, accountabilities, and defence planning.
In our follow-up audit, we looked to see if progress had been made since our first report, and also examined issues arising from the introduction into service of the LAVs.
Background
In January 2001, the Government signed a contract to purchase 105 LAVs at a cost of $652.833 million (GST-inclusive), plus the cost of foreign exchange cover. The cost of foreign exchange cover for the LAV project has varied since the original contract was signed, but the total capital cost has remained the same.
The LAVs have been delivered on budget and on time, and acceptance testing is due to be completed in December 2004. There was a delay of about 6 months from the schedule originally agreed, but this was because it was decided to take advantage of installing the latest generation 28-volt electric drive turret on the vehicle.
The August 2000 paper that put options to Cabinet for the purchase stated that acquiring 105 LAVs would enable the Army to deploy a battalion of 51 LAVs and to sustain that deployment by rotating it with an identical LAV battalion.
The Army is planning to use the LAVs in the context of the 8 May 2001 Government Defence Statement and the outputs listed in the NZDF 2004/2005 Output Plan. The 8 May 2001 Statement described the number of personnel in a battalion group deployment– 600-900 for a 12-month commitment, and 900-1200 for a 6-month commitment.
The Output Plan includes 2 targets for the introduction into service of the LAVs:
- a LAV company group to be at the directed level of capability by December 2004; and
- a LAV battalion group to be at the directed level of capability by December 2005.
(The term “directed level of capability” (DLOC) refers to the standard level of preparedness of a military unit or force when not deployed. For deployment, the level of preparedness is increased to “operational level of capability” (OLOC). The NZDF is funded to maintain DLOC in order to provide the Government with options for the commitment of a military force.)
Our findings
The rationale for purchasing 105 LAVs was to allow the Army to fully rotate a battalion of 51 LAVs.
The Army’s current plan for using the LAVs is significantly different to that originally put to Cabinet. The Defence agencies consider that the Army is now no longer required to operate the LAVs in the manner set out in the August 2000 Cabinet paper. In our view, the Defence agencies should have advised Cabinet of this change. We saw no evidence that this had occurred.
We tried to establish whether 105 LAVs were needed to meet current requirements under the 8 May 2001 Statement and the NZDF 2004/2005 Output Plan. We were unable to do this because of the large degree of flexibility built into these requirements. However, in our view, it could be possible for the Army to deliver its obligations under the 8 May 2001 Statement and the NZDF 2004/2005 Output Plan with fewer than 105 LAVs.
The August 2000 Cabinet paper that contained options for the purchase of the LAVs, and established the rationale referred to above, did not include necessary assessments of:
- how and when the Army would be able to deploy and sustain a motorised battalion group;
- the personnel implications for the Army; and
- the level of funding required for several other aspects of the project.
As a result, the LAV project has faced funding and personnel shortfalls. The Defence agencies have put a lot of effort into resolving these issues. While there were some inaccuracies and a lack of clarity around the resolution of funding for spare parts in particular, we acknowledge that the Defence agencies have had to manage these funding shortfalls in accordance with the clear Government direction that no additional capital funding would be allocated to the LAV project.
We also note that the Defence agencies have introduced a new Capability Management Framework that is designed to ensure that future proposals are supported by better analysis. In order to help achieve this, there has been a significant commitment to life cycle costing analysis throughout all the Defence agencies.
Our first report, and a subsequent MoD Evaluation Division report, made specific recommendations about how governance over the LAV project could be improved. In our follow-up audit, we noted some problems during the introduction of new governance systems, but are satisfied that the Defence agencies have generally improved the level of governance over the LAV project.
Recommendations
We make 9 recommendations in relation to the LAV project, military capability acquisition projects in general, and the Capability Management Framework. They are:
Recommendation 1
We recommend that the full effect of the personnel shortage in relation to the Light
Armoured Vehicle project be assessed. This should include implications for LAV
project goals, and for non-LAV units. The assessment information should be
periodically updated and reported to the Executive Capability Board.
Recommendation 2
We recommend that 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.
Recommendation 3
We recommend that 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.
Recommendation 4
We recommend that, when the planned use of a new military 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.
Recommendation 5
We recommend that the Capability Management Framework be amended to ensure that
all the important issues relating to military capability acquisition projects are brought to
the Executive Capability Board for discussion. This should happen even for issues that
are the sole responsibility of one of the Chief Executives.
Recommendation 6
We recommend that 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.
Recommendation 7
We recommend that – 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.
Recommendation 8
We recommend that every effort be made to negotiate any Logistic Support Agreement
concurrently with the prime contract, when seeking to secure support services for future
military capability acquisitions.
Recommendation 9
We recommend that life cycle costing analysis be completed for the Light Armoured
Vehicle project, as required by the Capability Management Framework, including a
calculation of the whole-of-life costs for the 105 LAVs. These costs should continue to
be monitored throughout the life of the LAVs, in order to assist with re-adjusting
operating baselines.