The main report.............
Below are the overall conclusions of the ANAO’s audit of the Australian Army’s Tiger attack helicopter program 15. Defence had intended that the ARH aircraft was to have been an ‘off-the-shelf’ delivery of proven, operational technology, lowering the risk of schedule, cost and performance shortfalls. The ARH acquisition transitioned to become a more developmental program for the ADF, which has resulted in heightened exposure to schedule, cost and capability risks, both for acquisition of the capability, and delivery of through-life support services. The lack of operational experience in maintaining this capability in other Defence Forces has meant that original cost estimates associated with the through-life support were immature, and exposed Defence to significant future budgetary risks. 16. As at October 2005, the DMO had expended $855.45 million on the Project, representing: payment for four aircraft out of the 22 aircraft to be delivered; design work; and a proportion of: external stores; facilities; training deliverables; and the required support equipment. Of this expenditure, $731 million has been expended on the Acquisition Contract in accordance with the Acquisition Contract’s Milestone Payment and Earned Value Management System, representing expenditure in the order of 60 per cent of the total value of the Acquisition Contract. 17. The ADF has not had an effective Tiger ARH capability and has had a limited ability to train aircrews, 12 months after accepting the first two production aircraft (ARH 1 and 2) in December 2004. At the time of acceptance of ARH 5 in June 2005, the aircraft was not fit for purpose against all the Contracted requirements (as was also the case with ARH 1 and 2). In June 2005, the DMO made milestone payments of $9.1 million for ARH 5, and $20.7 million in Earned Value payments. The ANAO was advised that the full milestone payments totalling $11.45 million were made for delivery of ARH 4 in September 2005. The DMO accepted the first three aircraft in a state that did not meet contractual specifications. However, the DMO did not withhold part payment from the corresponding milestone payments for production acceptance, even though the Acquisition Contract allows for this arrangement. The DMO did withhold 50 per cent of payments associated with the award of the Type Certification at the time delivery of ARH 1 was achieved for overall system deficiencies, but did not withhold milestone payment for the aspects associated with contractual deficiencies with the performance of the aircraft itself. The DMO advised that the design process is considered to be the area of highest risk. The Contractor is unable to claim for earned value packages associated with delivery of the aircraft that have not been completed. This included ferry tanks, and roof mounted sights. The DMO withheld 5 per cent ($2.3 million) of the Earned Value payments associated with delivery of ARH 1 and 2. The withheld amount associated with the Type Certification was paid in full on award of the Australian Military Type Certificate (with limitations) in October 2005, even though some of the design issues remain unresolved. 18. The DMO advised the ANAO that, at the time of Contract signature on 21 December 2001, it was accepted that the ARH delivered at In-Service Date (15 December 2004), and a number of subsequent ARH, would not meet the fully contracted specification. In February 2006, the DMO also advised the ANAO that negotiations commenced with the Contractor in 2002, which resulted in the DMO agreeing to a lesser capability at the In-Service and acceptance dates of the first three aircraft than that specified in the December 2001 Contract. The Acquisition Contract (Attachment C, Part 1) provided for the Project Authority to determine the configuration of the ARH required to meet the In-Service Date milestone. The DMO advise that all helicopters delivered in such a configuration are to be retrofitted at the Contractor’s expense to meet the final configuration required by the Acquisition Contract. The ANAO observed that the negotiation for a fundamental change to the Acquisition Contract to cater for the resulting remediation plan that impacted on available operational capability, was not formalised through agreed Contract Change Proposals. 19. The first three aircraft accepted by the DMO carried configuration deficiencies that did not meet contractual specifications. These included capabilities associated with: maximum all-up weight; weapons operability; navigation system operability for instrument rated flight conditions; software integration; an emergency locator beacon; a compliant voice flight data recorder operable in high ‘G’ environments; proven crash resistance; an ability to undertake protracted flight over water (for the first two aircraft); an operable ground management system to task and communicate with the aircraft; and the required spares and support and test equipment. 20. The DMO agreed that specific contractual capabilities were not required at the respective In-Service and acceptance dates of December 2004, and June 2005. The DMO advised that deeper level maintenance and the retrofit activity to ameliorate deficiencies with ARH 1, started in February 2006, and is to be completed in November 2006. 21. The ANAO noted that, at the time the Project Director accepted ARH 5 one month ahead of schedule, the subordinate Operational Airworthiness Authority delegation had expired five months earlier, in December 2004. There was no valid Operational Airworthiness Authority delegation that allowed the DMO’s Project Director to accept ARH 5. Defence advised the ANAO in February 2006 that the intention had always been to ensure that this authority was valid throughout the period for which it had lapsed, to allow the Project Authority to undertake acceptance activities.
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