The Land Domain – Re-allocation of priorities and acceleration of critical projects

Key recommendations and themes (Land)

Summary of key recommendations

In the Land Domain, the DSR recommends that Defence:

• Accelerate the delivery, and increase the quantity, of littoral manoeuvre vessels and land-based maritime strike capabilities.
• Reduce the quantity of Infantry Fighting Vehicles to be procured under project LAND 400 Phase 3 - from 450 to 129 vehicles.
• Cancel the acquisition of a second regiment of Protected Mobile Fires systems under project LAND 8116 Phase 2.
• Increase the quantities to be procured (and rapidly accelerate the delivery of) the High Mobility Artillery Rocket Systems (HIMARS) under project LAND 8113 Phases 2-4.

What does this mean for Defence procurement?

• Where the DSR recommends the cancellation or reduction in scope of a particular project, Defence should review the terms of the relevant contract(s) to determine the rights available to do so.  In particular, to consider the options to terminate or reduce scope for convenience, executive necessity, default, or some other reason - and the relative benefits and risks which may be realised, and mitigations to be put in place, as a result.
• To accelerate the delivery of capabilities identified as priority investments under the DSR, Defence may wish to break down procurement processes into discrete packages of work, with more urgent requirements being prioritised over less critical ones.
• Defence may also wish to consider utilising limited-tender and sole-source procurement methods to accelerate the delivery of urgent capabilities, where permitted under the Commonwealth Procurement Rules and Defence procurement policy.  The risks associated with selecting a single supplier or sole-tenderer (eg, verifying value for money in a competition-less environment), should be weighed carefully against the benefits of taking this path (eg, operational or security imperatives, and positive schedule and capability outcomes).  
• A hybrid multi-staged RFT approach to conducting a limited-tender process could be utilised to de-risk some of the value for money and competive risks involved in a sole-source environment.  This could involve:
• first, conducting a market study to determine the realistically available competition, suppliers, and/or solution(s) for a particular operational requirement;
• second, to conduct a limited-approach to identified participants or suppliers; and
• third, as the first stage in a multi-stage procurement process, to utilise a down-select (to one) mechanism early in the RFT process which is expressly designed to verify value for money among participants and agree key principles which are enforceable in subsequent stages of the RFT, before proceeding to a single-supplier environment.
• (For example, an initial RFT stage designed solely to validate a tenderer’s ability to deliver on a project’s operational and capability requirements (eg, using existing proprietary systems or designs), within an enforceable pricing framework, even if at the ROM level including clear assumptions.)
• Where acceleration of a project is required during delivery (or for any upcoming projects in the procurement phase), Defence may wish to adopt and/or incorporate ‘acceleration’-type clauses into these contracts to ensure that it has sufficient rights to direct or mandate the delivery of supplies sooner - noting that reasonable or unavoidable cost impacts are commonly payable under such frameworks.  Existing mechanisms such as the CCP and/or Survey & Quote (S&Q) framework under ASDEFCON could also be utilised, although any changes to schedule or scope will likely have a cost impact due to ramp-up and other surge costs (eg, workforce, short-term labour costs, leave loadings, and material surcharges).

Other impacts and recommendations across the Land domain

With the shift in the Australian Army’s mission toward littoral manoeuvre operations by sea, land and air, and the use of enhanced long-range fire capabilities to support the air and sea domains, the DSR recommends significant capability reprioritisation in the Land domain to support an amphibious force structure.

These new capability investment priorities for the Land Domain include:

• An immediate acceleration and expansion in the scope of the procurement of Army Littoral Manoeuvre Vessels (Landing Craft Medium and Heavy) under LAND 8710 Phases 1-2.
• A significant reduction in the scope of Infantry Fighting Vehicles to be acquired under LAND 400 Phase 3 from 450 to 129 vehicles.
• The cancellation of the LAND 8116 Phase 2 Protected Mobile Fires procurement, in favour of the acquisition of additional quantities of HIMARS systems.
• The expansion in quantity and acceleration of the delivery of HIMARS systems under LAND 8113 Phase 2-4, and Land-Based Maritime Strike capabilities under LAND 4100 Phase 2.

Legal and contractual implications for Defence

Re-prioritisation, re-scoping, and termination

With a clear mandate from Government to reduce scope or cancel certain extant projects within the Land Domain, Defence may wish to consider the rights, obligations, and considerations in exercising any right to terminate or reduce the scope of an existing contract (and which may include an exercise for convenience, or for executive necessity). In practice, exercise of a right ‘for convenience’ is generally reserved by the Commonwealth for use when major changes in national policy or strategic priorities require the termination or reduction in scope of contractual arrangements.

Exercising a right to terminate or reduce the scope of a contract for convenience will be closely scrutinised, and may be open to challenge.  Termination and reduction for convenience carries significant legal, commercial, and financial risks for the exercising party, and should generally only be exercised as an option of last resort, where no other suitable contractual mechanisms are available (eg, default or other pre-agreed off-ramps) and where clear advice on the terms of the particular contract has been given.  It will be essential to ensure that the exercise of such right is consistent with the terms of that contract - and common law principles, including any implied duty to act in good faith.

In acting on the direction by Government, Defence will also need to carefully assess the consequential effects set out within the relevant contract(s), in order to quantify any other costs that may become payable and which are attributable to (or otherwise payable in connection with) the termination or reduction.

For more information regarding the relevant considerations and risks associated with the exercise of a right of termination or reduction for convenience, read our recent article on this topic.

Acceleration - during procurement and once in-contract

The DSR recommends that the delivery of several capabilities within the Land domain are to be accelerated by Defence.  Depending on the stage at which a procurement or project exists within the procurement lifecycle (eg, pre-tender, pre-contract, or in delivery), acceleration could occur at either the procurement phase or the delivery phase (or both, throughout a project’s life).

• Acceleration of a procurement process

Accelerated acquisition processes can be achieved through stream-lining the solicitation phase of the procurement process prior to contract-award. This can be undertaken at the project planning stage by breaking down the procurement process into smaller, more manageable phases to ensure essential elements of the capability are evaluated, contracted, and delivered first, with less critical or follow-on requirements being delivered later.  This approach could be utilised in the transition to a minimum viable capability model within Defence.

Defence may also wish to consider the use of limited-tender and sole-source procurement methods to reduce the amount of time allocated to the selection of suppliers through a competitive tender and evaluation process.  In this case, Defence would need to ensure that the requirements for these procurements are clearly defined, and selected suppliers have proven capacity to deliver similar products, in order to mitigate risks associated with delays to delivery and issues with defective or unsuitable supplies.  Of course, where seeking to conduct a limited approach, advice should be sought on the application of the Commonwealth Procurement Rules (CPRs) and Defence procurement policies.  

• Acceleration in-contract

If a project requiring acceleration is in-contract, Defence may also wish to consider what contractual mechanisms it can utilise to accelerate a contractor’s delivery of supplies.

At present, the ASDEFCON suite of contracts do not contain any ‘acceleration’ clauses, as may be contained in other standard forms utilised in other industries (eg, the construction industry).  Acceleration clauses often provide the principal party (eg, the Commonwealth) discretion to instruct or direct a contractor party (eg, a prime) to deliver the supplies within a shorter timeframe than originally agreed.  The cost and other impacts of such acceleration is often agreed after the notice or direction, and commonly reserves the right for the principal party to determine the unavoidable costs reasonably incurred if agreement cannot be reached.  

Acceleration clauses are utilised in other Government contracting suites such as the Defence Estate Quality Management System (DEQMS) suite (for facilities and infrastructure works), and also in the New South Wales Government GC-21 General Conditions of Contract (GC21) within a building and construction context.  These existing Government suites may be suitable templates from which to adopt an acceleration regime for the ASDEFCON suite - amended to suit a Defence acquisition and sustainment context, and for consistency with the Defence Liability Principles.  Of course, any amendment to the terms of an existing contract (ie, to incorproate a new acceleration framework) would need to be mutually agreed.

Further information

If you have any questions or would like further information on the commercial and legal impacts of DSR in the Land domain, please feel free to contact us.

Authors:

Rory Alexander, Principal

Nick Faulks, Senior Associate

Norman Tao, Associate

‍