Reporting the progress of defence acquisition projects - interim report

The New Zealand Defence Force and the Ministry of Defence (the defence agencies) are responsible for, among other tasks, acquiring new defence capabilities (such as upgraded electronic systems for existing military planes, and new naval vessels or army vehicles). Significant costs, time frames, and risks are involved in projects to acquire those capabilities. To demonstrate how well they are managing these projects, the defence agencies must be able to report clearly how and why costs, time frames, and essential user requirements change as a project progresses.

The scope of our audit

We started a performance audit in mid-2007 to identify and report changes to costs, time frames, and essential user requirements for the 10 largest and highest-priority defence projects. We were unable to complete the audit as originally intended because we had difficulty obtaining all the detailed information we needed from the defence agencies. However, we were able to compile a high-level summary of how costs and time frames changed for the 10 selected projects. We provided this information in our interim report of June 2008.

Our findings

The interim report identified issues about the quality, transparency, completeness, and usefulness of the defence agencies' reporting on their major projects. Specifically, we found some significant increases in estimates of costs and time frames between when Cabinet gave approval for a project to begin and when Cabinet gave approval for a contract to be signed.

We also found that the visibility of variations to estimates of costs and time frames, any trade-offs (that is, when capability is reduced to ensure that costs remain within budget), and the reasons for both could be improved. There was also a mismatch between the defence agencies' guidance on managing these projects and their actual practice.

A staged approach to addressing the interim report's findings

Working collaboratively with the defence agencies, we have taken a staged approach to improving the quality, transparency, and usefulness of the defence agencies' reporting about the progress of their major projects. The objective of this approach is to ensure that the defence agencies are able to show Ministers, Parliament, and other stakeholders that they are appropriately managing their major projects. The defence agencies have committed to this work, which has spanned the 2008/09 and 2009/10 years.

The first stage involved identifying the information requirements of the defence agencies' internal and external stakeholders. This work was completed in June 2009, and the results were reported directly to the Foreign Affairs, Defence and Trade Committee.

The second stage involved work by the defence agencies to create, with our assistance, a revised reporting framework to meet the needs identified during the first stage. The rationale for revising the reporting framework is to ensure that future reporting to the defence agencies' internal and external stakeholders, including Parliament, provides:

• relevant and timely information that tracks project progress and enables the defence agencies to be appropriately held to account; and
• adequate explanation of the capability development process so that stakeholders can clearly interpret the information and what it tells them about the defence agencies' performance.

The result of this second stage work will be a Major Projects Report produced by the defence agencies. We will provide an overview opinion of this report, having validated the information produced by the agencies. This overview opinion will provide assurance about whether anything has come to our attention that causes us to believe that the information reported has not been fairly disclosed. A pilot of the Major Projects Report, based on the C-130 Life Extension Project, was provided to the Foreign Affairs, Defence and Trade Committee in November 2009. That pilot report will be followed by the first full Major Projects Report, covering a number of projects (to be determined), to coincide with publication of the defence agencies' annual reports for 2009/10.

We are encouraged by the defence agencies' progress to date. We intend to produce an update on the progress of both stages of our work with the defence agencies in the follow-up report about our 2009 performance audits.