Harry Dunstall, General Manager – Commercial

Speaking to APDR Editor Kym Bergmann

1st Oct 2010


Q. This is a relatively new position in DMO. What is it’s purpose:

“The position was recommended by the Mortimer Review. The fundamental role is to assist the CEO to make the DMO a more business-like organisation. Our purpose is to contribute to equipping and sustaining our sailors, soldiers and Air Force personnel more effectively and efficiently through increasing DMO commercial practices and that our work results in enhanced mutual respect between Defence and Industry.

“These things can’t be achieved overnight – it’s a process of continuing the reforms which the CEO (Dr Gumley) has been driving since he joined the organisation.

Q. What are some of the particulars? Do you have to look at the skill sets of DMO personnel?

“Yes. It’s one of the great challenges for DMO because unlike some other Government agencies we face a great deal of competition for our work force from the private sector. Some of this competition comes from defence industry, but at the moment we are also suffering from the lure of the mining industry in particular and sometimes that makes it difficult to find and retain the sorts of skilled people we need.

“I have regular discussions with industry colleagues through a variety of forums – things like the Australian Procurement Construction Council leadership group, to give you an example – and all of us face similar problems. My focus is on the procurement and contracting workforce and we cannot always find the skilled people we need. The big difference is that private sector companies have the flexibility to pay more – not necessarily a lot more – but enough to attract and retain the people they require. It’s just a fact of life that in the public service we don’t have that amount of latitude and we do find it challenging.

“The skill sets we develop in our people – particularly for our procurement and contracting workforce – are held in high regard by the government and industry sectors. There is a lot of data showing that the procurement sector is the fastest growing professional group in Australia. I have around 250 specialists across the various Projects and System Program Offices (SPOs) and one of our challenges is to further increase their skill sets.

Q: How do you go about achieving that?

“We have a significant internal professionalisation agenda. We have a number of initiatives underway with the peak industry bodies involved in this area and we are doing things such as developing a national vocational procurement framework. In addition, and in conjunction with the Australian Procurement and Construction Council, we are establishing a Masters degree in strategic procurement, which will be available through universities all around Australia in 2011.

“Having said that, not everyone will necessarily require a higher degree. We have a workforce that starts at the level of a junior contracting officer (APS level 5 – about $85,000. Editor), then senior contracting officer, and finally chief contracting officer. Our vision is that professionals will be able to rise through these various categories and at each stage there will be particular training requirements to be met. We are identifying exactly what someone will need to do before progressing to the next stage.

“The level of procurement undertaken by DMO varies significantly. Last financial year DMO let around 112,000 contracts – however 111,500 of those were simple purchase orders involving a one-page form or even the use of a purchase card. So for the vast majority of cases we don’t require the involvement of our professional contracting specialists, but rather we rely on our simple contracting templates to make life easier for purchasing officers.

“Where our contracting staff come into the picture is for those higher end contracts – which might be five or six hundred per year – which require the use of our higher end ASDEFCON templates.”

Q: How do you respond to complaints that some tenders are unnecessarily complex?


A: “Some of our tenders will always be complex – there’s just no way around that because at the very high end there will always be demanding technical specifications. Having said that, what DMO needs to do is minimise the amount of documentation we are requiring tenderers to provide, particularly in circumstances where we are dealing repeatedly with the same companies. We have to ask ourselves questions about how much of the generic data we need to have replicated in each response – the financials, the insurance details, quality plans and so on.

“It’s also important to make sure that DMO picks the correct template right at the start of the process and that we tailor it in the right way. I’ve intervened in the process a number of times, especially when SMEs are involved, because it is sometimes the case that we have picked the wrong template and we have used something too complex for the particular procurement.

“We have around 20 templates and we are trying to simplify and standardise them to the greatest extent possible. For example, we’ve just added a template for the disposal of equipment – something that previously didn’t exist, even though we have to dispose of a number of items that have reached the end of their life-of-type.

“We need to make sure we have templates that reflect the complexity of the procurement and accurately reflect the risk profile of the activity. We have also just released a new standing offer for goods and maintenance services (SOGMS) that will be a major improvement on past practice for procurement of items at the lower end of complexity. I remember when I joined DMO in 2007 there were significant bottlenecks in the maritime area because of some difficulties in the contracting mechanism and negotiations for the provision of spares. These were often simple procurements but OEMs would not sign up to them because the form in use didn’t contain a ‘limitation of liability’ clause

“We’ve now addressed that issue with a more appropriate template, to the relief of the OEMs and also SMEs. This alone will lead to significant efficiencies.

“At the other end of the range, there has been a lot of criticism from industry about the costs of tendering – particularly the time and resources needed to submit a bid, which can be a significant cost for a company. In the light of this we initiated discussions with the private sector to work out exactly what is driving these costs and we did this in the form of a dedicated joint industry and DMO working group to make sure that this activity was progressed quickly. This process has led to a number of recommendations that will now flow through to our ASDEFCON Strategic Materiel template.

“As a trial run we are testing these changes on Project SEA 1442 Maritime Communications Modernisation. If the changes to the template prove to be satisfactory they will then flow through to all other strategic and more complex procurements.

“The feedback from industry so far has been very encouraging.”

“In essence, what we are doing is reducing the amount of data we are seeking in the original RFT – so instead of requiring a whole lot of detailed plans what we are now looking for is an over-arching strategy document. While it will ask for information about how the company plans to achieve particular goals it will do so in a broad way. DMO will then use that data – along with reduced amounts of commercial information – to make shortlisting decisions as efficiently as possible.

“What we will then do is put the selected tenders through a mandatory offer definition phase. We will work with each of them and it is during this activity that we will refine the detail and make a final selection at the end of that process.

“This will reduce the costs of tendering for those companies that aren’t shortlisted. This in turn means that we will only require tenderers to do a lot of work when they know for sure that they have a reasonable chance of being selected because they will be only one of two or three companies still in the race. At this stage there should be a great deal of incentive for those shortlisted companies to produce high quality documentation.

Ultimately the objective of our solicitation process is to gain the required level of accurate information on capability, cost, schedule, risk and Australian industry elements for the whole of life of of a project for Government to make an informed decision.

Q: Will this simplified approach flow through to Requests For Information:

A: “Yes. One of the actions that will come out of the present effort to simplify the ASDEFCON Strategic approach will be to flow that down to all other related templates.

“Another action we will undertake as a result of the cost of tendering initiative is to make sure we have a much higher level of engagement with industry before releasing the RFT. DMO will be undertaking many more one-on-one meetings and will conduct market soundings. I am very much in favour of direct individual meetings with companies where they can talk more freely and give more detailed feedback than if they are part of a large group.

“Another mechanism will be to issue draft RFTs wherever possible and use the feedback we receive to make sure that the final document is better tailored than has sometimes been the case. This has a large number of advantages, including that industry will already be engaged in the process and will understand the requirements – leading to a better outcome for everyone.

Q: In the past this approach hasn’t always worked, given the reluctance of some managers to see industry engagement as a priority.

A: “It is going to take time to introduce this new culture across the organisation. So what we are doing is to steer DMO in the right direction and after that it’s a matter of training and education. The contracting specialists will be advising the Projects and the SPOs about the best way of dealing with the issues, including advocating more contact with industry.

“I am confident that you will see a lot more early engagement with industry – that we start to run more market soundings and undertake other similar measures.

“We are in the process of conducting market sounding for LAND 121 Phase 5 (the possible procurement of unprotected vehicles) based on an earlier activity on another project and we see this as an important way of sharing and gaining information between Defence and Industry.

“Another important part of the cultural change I refer to is reducing the number of ‘Essential’ requirements we include in our tenders. At a personal level, one of things I have always tried to persuade project staff to do is minimise the number of ‘Essentials’.

“It can be difficult for DMO to make an impact because the requirements set is developed by the capability managers – but I think we need to work harder with the capability managers to make sure requirements are specified correctly . My own view – which is consistent with broader Commonwealth guidelines – is that if a bidder does not meet an ‘Essential’ requirement then they should be excluded, such is the significance of such a failure. A requirement cannot be genuinely ‘Essential’ if under certain circumstances – such as a low price – a failure to meet that requirement could be accepted.


“We know that the over-use of ‘Essential’ requirements drives price and the solutions being offered – so we have to work harder to make sure capability managers are aware of the consequences of how we categorise the requirements.

Q: So is this a matter of internal dialog?

A: “Yes. It’s a matter of us working closer with capability managers and testing why certain things are specified as Essential or indeed are required at all. It’s important to ask questions so as to understand whether a particular solution is being sought or whether it is needed from a capability perspective.

Q: There have been some past examples of where that has caused difficulties:

A: “We have a number of Gate Reviews and I sit on every Acquisition Categorisation 1 (ACAT-1) and most of the ACAT-2s and I think this process is one of the best things we have introduced into DMO. The Gate Reviews involve the individual project managers, the capability managers and all the other senior stakeholders getting together and in a constructive way testing all of these things.

“It’s really important that we put our projects through a series of key gates – they not only take place before 1st Pass and 2nd Pass approval, but also prior to the release of the RFT. After that the same mechanism can be used through the life of the contract, particularly at major milestones. It’s a process by which we can have senior level stakeholder oversight of a project – and that is a great way of making sure that the project is on track to deliver the necessary capability for our troops, as approved by Government. Depending on the project, we might also include the Chief Information Officer, or it might be Infrastructure Division.

Q: What are views on sole-source contracting where only one solution is realistically available?

“That does happen in some cases and if there is no genuine alternative then we should just go ahead and buy it. This is an internal issue for Defence – we have to work more closely with the capability managers and really test the requirements in situations where it looks like only one solution is available to satisfy ourselves that that is in fact the case.

“It’s important to recall that the Mortimer Review was all about improving the way Defence operates – not just DMO – and many of the recommendations are about the way the capability development process functions.”

 

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