Audit Reports Summaries
                         Audit Report No. 28 1995-96
                                   Tabled 18 June 1996

                             Department of Defence
                                    Performance Audit

The Jindalee Operational Radar Network (JORN) Project is a Defence initiative designed to
provide significant strategic advantages for Australia. It requires the construction of a long-
range sky-wave over-the-horizon radar (OTHR) network at an overall project cost of $1.1
billion. JORN will be used primarily for military purposes. It involves a large expansion of
Defence's OTHR capability based on experience gained from the Jindalee OTHR at Alice
Springs. Unlike conventional microwave radar, sky-wave OTHR uses radio reflection from
the ionosphere.
Defence, through its Jindalee Project Office (JPO), is responsible for overall management of
the Project. The JPO's main function is to ensure that Telstra (the project's prime contractor)
delivers JORN as agreed in the contract. Telstra is to be paid over $800 million for designing,
developing, installing and presenting for acceptance two integrated radars - one at Longreach
in Queensland and the other near Laverton in Western Australia. Both are to be controlled
from a central facility at Salisbury in South Australia. The Project began in 1991 and has
progressed more slowly than expected. In 1994 Telstra rescheduled JORN's completion from
1997 to 1999 and is proposing a further rescheduling, possibly to June 2000. The necessary
contract amendment to change the original completion date still needs to be negotiated with
If Defence is required to pay more than the 'target price' of $814 million for JORN, there is a
'ceiling price' of $896 million at which point the contract becomes a fixed price to Defence
with any other costs borne by Telstra. For this reason Defence expects the project to be
completed within the approved total project cost, adjusted for escalation and foreign currency
variations. Other project costs are expected to bring the approved cost of JORN to $1.1
Audit Objective
The objective of the audit was to assess the performance of the Department's management of
the project in the light of accepted project management techniques, including risk
management. An important part of the audit was to derive lessons to be learnt and
recommendations that could be applied to the remainder of the project and to other large
Defence projects.
Key Issues
At the outset Defence knew that JORN was a high-risk development project and that Telstra
was inexperienced in OTHR technology and defence system full-scale development methods.
The ANAO considers that many of the difficulties and slippages on the Project could have
been avoided if Defence had appointed an experienced project management team in the JPO
ready to deal firmly and proactively with Telstra when slippages and management problems
became apparent.
In order to prompt satisfactory performance, progress payments should have been applied to
better indicators of progress and payments withheld until their value was earned. The JPO
should have insisted on compliance with contract requirements regarding system reviews and
risk abatement plans. This would have helped reduce the risk to Defence of paying more than
the target price and the risk of delayed availability of JORN.
Overall Conclusion
Milestone progress payment amounts are not necessarily linked to the project's earned value at
each milestone. The ANAO considers that this has led to significant misalignment between
the value underpinning the project's originally-planned progress milestones and the value of
progress payments made. If current payment trends continue Defence's JORN full-scale
development budget will be spent by mid-1997 (the original project completion date); but
there will still be two or more years of system development work to be done, including the
high-risk, high-cost, systems integration phase of the project.
The ANAO formed the view that it is difficult for an outsider to make an informed judgment
about the stage of JORN development actually reached. This is because of project
management and system engineering problems revealed during this audit and the findings of
the JORN Technical Audit conducted by the contractors.
With 80 per cent of the JORN prime contract target price of $814 million spent (or 73 per cent
of the ceiling price) and 80 per cent of the original schedule elapsed, less than 18 per cent or
23 of JORN's 129 configuration items had passed critical design reviews by the JPO. The JPO
states that many of these reviews are classified as informal 'design walkthroughs' that may not
meet the contract's stringent technical review standards. Of the 23 configuration items
reviewed, only 5 per cent or 5 of the 94 hardware configuration items have passed through a
'first-article-manufactured' test.
Overall, about 28 per cent of JORN's software has now been produced. The JPO advises that
the JORN software joint venture has produced about 19 per cent or 150 000 of the 800 000
source lines of software code now estimated to be required for the joint venture's part of the
Project. Telstra's other major JORN subcontractor has produced about 49 per cent or 190 000
of the 400 000 source lines of code now estimated to be required for its part of the Project.
However, the actual number of source lines of code to be written for JORN is unknown
because some software requirements and designs have not been completed. The JPO advises
that software estimates may escalate once the software design is complete.
The ANAO concluded that, given the slow progress in JORN software and hardware
production and the systems integration challenges ahead, no single party had a clear and
accurate understanding of the overall size of the JORN development task.
Defence said in response to the audit that there was little doubt that JORN's cost will exceed
the ceiling price and the loss will be borne by Telstra. Defence said that, since 1994, concern
had been expressed to the contractors about the project and that this had led to management
changes and restructuring of the subcontract arrangements. Defence was confident that a
satisfactory technical outcome remained within reach but said it would be unrealistic to expect
that problems faced by the project could be turned around quickly. It further stated that it had
taken significant action to address some specific risks and this had been followed up by
substantial actions taken by both Telstra and its main subcontractor.
Recommendations and Responses
The ANAO made 17 recommendations designed to improve project management on JORN
and other major Defence projects. Defence accepted these. Telstra believes the ANAO's
findings and recommendations should provide lessons learnt that should be applied to other
larger projects and the remainder of the JORN Project.

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