Customer Perspectives:
Dealing with the FMS System
Wing Commander Debbie Richardson
Director Foreign Military Sales
Embassy of Australia, Washington DC
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SCOPE OF PRESENTATION
•
AUSTRALIAN DEFENCE PORTFOLIO
•
SCOPE OF GOVERNMENT TO GOVERNMENT PROCUREMENT
•
FUTURE TRENDS
•
AUSTRALIAN EXPERIENCE
•
– Standard Level of Service
• Pre-LOR activity
• Case Development
• Case implementation
– Contracting Process
• Participation in contract negotiations
– Intellectual Property rights
• Reducing contract lead times
SUMMARY
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THE 2011-12 DEFENCE
BUDGET
• Australian Defence Budget
– $27.3B in 2011/12 or 1.8% of Australia’s GDP
• Defence Materiel Organisation (DMO):
– $10.1B of funding to support the ADF in 2011/12
– About 37% of Defence portfolio budget
– About 40% of the DMO budget was spent on FMS in 2011
• Foreign Military Sales
– 505 open cases with a value of USD$17.5B
– Australia was the 3rd highest Security Assistance customer by sales in 2011
Year
Case Value
Cases
2008
1,138,143,348
104
2009
819,499,142
78
2010
1,427,832,736
88
2011
4,024,018,288
90
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SCOPE OF GOVERNMENT TO
GOVERNMENT ACQUISITION
• Recent FMS Cases
– Australian C-17 program
– Final delivery of 24 Super Hornets in Oct 11
– MH-60R Acquisition and support
• LOAs
- Acquisition of C-27J
- Growler modification
• US – Australia Cooperative Acq Programs
–
–
–
–
–
Joint Strike Fighter
P-8 Poseidon – Replacement Maritime Patrol Capability
Wide Band Global Satellite
Heavy Weight Torpedo Program
NULKA Program – Anti Ship Missile Decoy
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US ARMY SUPPORT
• The Australian Defence Force has received excellent support from the
US Army in recent years; particularly for capabilities in support of
Operational Enduring Freedom (OEF).
• A few of our recent success stories:
– LOR submitted in Jul 11 for 2 x CH-47D lost in theatre. LOA
received in Sep and equipment delivered in Jan 12.
– CH-47F orders on contract as at Dec 11 for deliveries commencing
mid 14
– M777A2 Towed Howitzer – all guns delivered
– LOR for Husky CIED system submitted in Sep 11, LOA received in
Dec for deliveries from Aug 12
– Early delivery of second Shadow UAS
– 60mm mortar tube diversion request approved for OEF support
– Blast Sensor System LOR to LOA in 71 days!
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FUTURE TRENDS
Strategic Reform Program
• In 2009, Defence adopted the Strategic Reform Program which is aimed at
delivering the current White Paper capability described in Force 2030, in
part by reinvesting $20.6 billion in cost reductions to be achieved over 10
years.
• To date the savings targets have been met but there are some lean years
ahead:
– Savings target of $230m achieved in 2008/09
– Savings target of $263m achieved for 2009/10
– Savings target of $288 achieved for 2010/11
– Target for 2011/12 is $370m
– Target for 2012/13 is $515m
• DMO working in close collaboration with the Capability Managers, need to
drive cost conscious behaviours while supporting agreed capability – we
have to live within our budgets.
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FUTURE TRENDS: Equipment costs
2011
1999
$3,600
$27,500
2011
$27,500
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SCOPE OF PRESENTATION
•
AUSTRALIAN DEFENCE PORTFOLIO
•
SCOPE OF GOVERNMENT TO GOVERNMENT PROCUREMENT
•
FUTURE TRENDS
•
AUSTRALIAN EXPERIENCE
– Standard Level of Service
• Pre-LOR activity
• Case Development
• Case implementation
– Contracting Process
• Participation in contract negotiations
• Reducing contract lead times
• Intellectual Property rights
– FMS Payment Schedule
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AUSTRALIAN EXPERIENCE
Standard Level of Service
• Since the increase in the Administrative surcharge from 2.5% to 3.8%,
and concurrent removal of the Program Management Line on cases,
Australia has been particularly vigilant in ensuring we receive the
Standard Level of Service (SLS) as described in Table C5.T6.
• This Table describes pre-LOR, Case Development and Case
Implementation activities which are considered SLS.
• A recent DSCA Policy Memo has removed the monetary limit on preLOR activities and it is hoped will prove more equitable for all
countries.
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AUSTRALIAN EXPERIENCE
Standard Level of Service
• Anecdotally, we have also been advised that USG Case Development
assets are under pressure.
• Australia acknowledges that we are a busy and demanding FMS
customer. However, $4B in sales = $152M in Admin Surcharge.
• We cannot argue for case funding for services which are included in
SLS.
• The pressure on Admin funding has also impacted Case Execution.
• As sustainment budgets are approved for the life of a capability, these
changes can have serious and detrimental effects on our operations.
• DSCA are providing guidance on how Admin Surcharge is distributed
and specifically how Admin funded positions can be reclassified.
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AUSTRALIAN EXPERIENCE
Contract Management
• In a fiscally constrained environment (Strategic Reform Program),
Australia is keen to ensure value for money from FMS, particularly in
comparison to Direct Commercial Sales.
• The Defence Materiel Organisation has recently written to the US
Assistant Secretary of the Army for Acquisition, Technology & Logistics
to seek greater participation in contract negotiations and visibility into
price-performance trade-offs.
• In counterpart talks last month, Mr Kendall supported this objective and
Australia is keen to identify a suitable test case for taking a more active
role in negotiating our requirements.
• Australia is particularly keen to understand what Intellectual Property
rights the US has negotiated in FMS contracts; there is a perception
that FMS cases reduce the ability to compete future sustainment
arrangements and thereby limit sovereignty.
• Australia also acknowledges that we need to get smarter on what
rights we require to install, operate, maintain and train on US acquired
equipment which could be stated in the LOR.
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AUSTRALIAN EXPERIENCE
Contract Management
• Australia is keen to reduce nugatory delays in contract processing
times.
• Given that Australia has approved a project and budget prior to LOA
signature, further delays in defining, tendering, auditing and negotiation
can delay delivery of materiel and appear to add little value.
• As stated in the US Security Cooperation Reform Report US
contracting practises ‘are biased toward risk mitigation and error
reduction rather than speed’.
• One recommendation of the Report is greater latitude to use alternate
contract mechanisms such as Undefinitized Contract Actions and
Letter Contracts (also supported by DFARS 217.74).
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SUMMARY
• Despite the need to achieve SRP savings, Australia expects to
replace/upgrade 80% of our warfighting assets over the next 15 years.
• FMS remains a popular – if not preferred Acquisition Strategy.
• However…
– concerns over Value for Money from the Administrative Surcharge;
– lack of visibility into Contract negotiations – in particular visibility of
Intellectual Property rights and control of sustainment; and
– USG contract lead times which delay equipment delivery
…can undermine the business case for FMS.
• For further discussion!
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QUESTIONS??
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