Reports and Publications

• Defence Capability and Resourcing Review (DCARR)
  • Contents
  • Executive Summary
  • PART 1 - Background
  • PART 2 - The Operating Environment
  • PART 3 - The Condition of the NZDF and Ministry of Defence
  • PART 4 - Capability Gaps, Funding Options and Implementation
  • PART 5 - Conclusions and Recommendations
  • Appendix 2: Distribution of Increased Appropriation in First Five Years

Within this section

• Human Resources
• Management Systems
• Equipment and Reserves
• Information Systems
• Defence Estate
• Efficiency Opportunities
• Policy Advice
• Output Classification

Final Report
Defence Capability and Resourcing Review (DCARR)

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PART 3 – The Condition of the NZDF and Ministry of Defence

1. The initial DCARR analysis was divided into eight functional areas, addressing particular areas of capability and resourcing.

Human Resources

2. Human resources (HR) are the most important resources available to the NZDF and Ministry of Defence – without people, even the most sophisticated military equipment will be ineffective. The continued availability of people to the NZDF itself depends on the supply of resources to the organisation- financial resources, land and facilities, and equipment – which provide the wherewithal for the people to combine into an effective Defence Force.
3. There has been a long-term decline in personnel numbers. Annual Reports of the NZDF show that total number of personnel has fallen from 20,785 in June 1991 (14,634 regular force and civilian, 6,151 territorial and reserves) to 15,512 (11,669 + 3,843) in June 1998 and 12,889 (10,684 + 2,205) in June 2004.
4. These changes have resulted from a number of factors, including the disbandment of the Air Combat force and the reduction in the frigate fleet, contracting out support services such as the naval dockyard, catering and base maintenance, and the implementation of efficiency and effectiveness initiatives. Limits on personnel numbers have also been imposed by the Chief of Defence Force (CDF) as a response to funding constraints.
5. Workforce “demand” describes the number of personnel required to carry out the military roles and tasks required by the government, as well as the number of personnel (both military and civilian) required to carry out the day to day tasks of the NZDF. The number of military personnel includes those deployed, those who have just been deployed, those being trained, and those who are carrying out essential non-deployed tasks. Both the Navy and Army include reserve and territorial forces in their calculations of required personnel.
6. Single services have models to estimate the numbers of personnel required to support military tasks (the NZDF’s Personnel Capability Planning Model), and also detailed “stocks and flows” models to calculate the numbers of personnel by ranks and trade required to sustain the structure a service into the future. These models were reviewed by NZIER Ltd as external consultants contracted to the DCARR, and were found to be suitable for their purpose.
7. The required numbers and structures predicted by these models have not been attained. Continuing financial constraints on the NZDF have led to directed limits on “paid strength”, which are substantially below the required levels. The DCARR concluded that the shortfall between the numbers required to deliver the currently directed level of capability (DLOC) required by the government without risk is around 2,500, although the exact number fluctuates as personnel leave or join the NZDF, and will vary as management decisions are taken with regard to new organisational structures and future capabilities.
8. Current shortages are particularly significant in the Army and in HQ NZDF, but all services and both Headquarters are affected. The Army is unable to sustain a motorised battalion in the near term, and has critical shortages in a number of trades. The Air Force has identified a need for significant increases in logistics support personnel, including flight safety, to support planned future introductions of aircraft. The Navy is currently looking to recruit appropriate personnel to ensure the full crewing of the Protector fleet from 2007 onwards.
9. Shortages are particularly severe in some trades, and there are also shortages at some rank levels. The Headquarters NZDF, in particular, is affected by shortages of middle and senior ranking officers (senior Major and Lieutenant Colonel equivalents), due to the need to deploy these ranks operationally. While the experience gained on these deployments is beneficial, this shortage has been a significant contributor to the erosion of management capability in the Headquarters NZDF.
10. Workforce “supply” describes both the external supply of recruits from the labour market, and the internal supply of trained personnel. The NZDF typically recruits untrained personnel into its ranks, and then trains them over a period of years in the varied skills required for their chosen speciality. While there are opportunities for lateral recruitment of civilians, and also in some cases for skilled immigrants from overseas armed forces, the military workforce is predominantly “home grown”.

11. The NZDF has a significant investment in training infrastructure (people, land, facilities and equipment), but in the absence of suitable recruits, that training infrastructure may not deliver fully trained personnel to meet all requirements. Given current demographic trends in New Zealand, and the continuation of a tight labour market, the NZDF will face growing competition for recruits, as other prospective employers in the public and private sectors value the same skills in a diminishing pool of potential workers. The availability of territorial forces to provide back up to regular forces is also diminished, although the 2004 Volunteers Employment Protection Amendment Act addresses concerns in this area.
12. The NZDF faces a significant additional concern in that it is developing a highly trained workforce, which is itself a target for other employers seeking to acquire trained staff. With the current low level of unemployment in the New Zealand economy (reported at 4% in late 2004), the NZDF represents a particularly attractive source of trained staff, given that it is not necessarily able to compete with prevailing market rates of pay. There are high profile opportunities outside the NZDF for several kinds of trained personnel, but in general the risks to the NZDF workforce affect all ranks and trades.
13. While the Navy and Air Force attrition levels are close to the historic averages of 13.6% and 11.9% respectively, the Army is suffering significant attrition, at around 18% or around 750 per year, compared to its long term average of 14.9%. This requires the Army to increase its training throughput just in order to retain its current level of capability, at a time when skilled personnel – the potential trainers – are being targeted by civilian employers. The need to provide trainers further diminishes the ability to deliver operational capability in the short term.
14. All services have managed to stay close to directed levels of personnel, but those directed levels place at risk the NZDF’s continued ability to deliver the government’s required level of capability. As noted above, the NZDF as a whole remains significantly short of the number of personnel needed to deliver the capability required by government policy.
15. In view of the particular situation of the Army, the DCARR recommends that the NZDF, in conjunction with the Ministry of Defence, should undertake a special study to establish how the Army should be configured to best maintain its operational capability during the next few years as it builds its capability towards the level required by government policy.
16. The DCARR emphasises the critical importance of workforce management to the future capability of the NZDF. Building personnel numbers to the levels required will take time and it is as important both to stem the outflow of skilled personnel as to increase the intake. Effective workforce management will require the development and implementation of a comprehensive Strategic HR plan and additional financial resources.
17. Strategic HR management has been poorly resourced in the NZDF in the past, but the CDF has directed the development of a single NZDF HR Strategy document, which is now in preparation. That strategy will address the demand, supply and retention of the personnel needed to enable the NZDF to deliver the capability that the government requires. It will be integrated with an overall NZDF Strategic Plan, which the CDF has also directed will be prepared.
18. The DCARR recommends that strategic HR Policy be closely aligned with the LTDP, to ensure that the future HR implications of equipment purchases are given appropriate focus at all times.

Management Systems

19. The NZDF is a substantial organisation by New Zealand standards, directly employing 12,889 people as at 30 June 2004, with a current budget in excess of $1.5 billion. In order to evaluate the NZDF’s management systems and processes, the DCARR commissioned Deloitte to undertake an assessment.
20. Deloitte’s key observation was to confirm the acknowledged weaknesses in decision support systems for strategic management. These weaknesses are highlighted by the lack of an overarching NZDF Strategic Plan. The systems that do exist tend to be operationally biased, being focussed on output delivery rather than organisational capability.
21. One important cause of this situation has been longstanding funding constraints that have prompted a movement of resources from “tail to teeth”. This is an acceptable option only in the short-term and becomes unsustainable over the long-term.

22. The impact of the funding constraints is manifest in the personnel shortfalls in HQ NZDF, with trained senior personnel being withdrawn from strategic positions to fill operational, staff and command roles. In principle, such positions should be able to be filled from existing resources. In practice, those resources are not available. As noted above, the NZDF is critically short of a number of ranks and trades, and this shortage has consequences through to the strategic management capability of the NZDF as a whole.
23. A number of initiatives are already underway within the NZDF to address the acknowledged weaknesses in management systems. The DCARR recommends that certain projects currently under way should be given priority and should be adequately resourced. These include:
    1. the creation of a Planning Branch to coordinate the strategic planning and programme management capabilities of the HQ NZDF, and to monitor progress of the organisational activity arising from the DCARR and RASA;
    2. continuing development of the Capability Management Framework processes to integrate the implications of capital acquisition planning into strategic decision making; and
    3. the roll-out of enhanced frameworks for corporate planning, risk management, performance management and knowledge management across the NZDF.

24. Given that HQ NZDF is already critically short of personnel with the relevant skills, additional resources will need to be made available to give effect to these initiatives.

Equipment and Reserves

25. The NZDF’s operational capability depends on the equipment used by its trained personnel. Equipment ranges from major capital assets such as ships, aircraft, vehicles and information systems, down to individual weapons and tools. The LTDP addresses the major equipment requirements of the NZDF over the 10 years from 2002, and implementation is well advanced. By 2012, the NZDF’s major weapons platforms should be aligned with the current requirements of government policy. Smaller capital items and consumables are expected to be provided from the NZDF’s depreciation funding and operating budgets.
26. Equipment must be maintained using stocks of spare parts, replacement items and consumable items. The level of stocks that must be held and the rate at which they are consumed depend both on the level of preparedness required and the level of activity undertaken. Where activity levels demand, it is acceptable to draw down heavily on those stocks, but ultimately they must be replenished or there will be a risk of capability failure.
27. All three services suffer from shortages in contingency reserve stocks of key items - ammunition, rotables, and spare parts. The Army alone estimates that it will need to spend $170 million on such stocks over the next ten years.
28. Continuing funding constraints have led to under-expenditure on replenishing both equipment and reserves. As a result, stocks have fallen well below appropriate levels. This has an impact on the readiness and effectiveness of force elements. The DCARR has estimated that a total of $690 million would be required to fully fund minor equipment upgrades and replacements over the next ten years.

Information Systems

29. Good systems for command, control, communication and intelligence have always been cornerstones of the effectiveness of any military force. The information age has hugely increased that importance; modern trends in war fighting have introduced the concepts of net-centric warfare and the knowledge-edge force, that act as force multipliers, enhancing the effectiveness of traditional force elements.
30. Information systems are critical to the NZDF for managing the organisation, managing its military forces and communicating with security partners. However, the DCARR has identified that funding constraints have resulted in a significant under-investment. The DCARR estimates $210 million will need to be spent over the next ten years to modernise existing systems, and keep pace with requirements, especially in the need for an NZDF-wide information management system.

Defence Estate

31. The “Defence Estate” describes the properties and bases from which the NZDF operates. Most of the estate was originally developed in the mid-20th century, during and after the Second World War, and has been subject to periodic redevelopment since then. It ranges from purpose-built military assets, through standard commercial and office accommodation, to residential housing, with accompanying services and infrastructure. It is valued at $1.016 billion, and costs approximately $115 million per year to hold, manage and maintain.
32. The DCARR commissioned OPUS International Consultants Ltd (OPUS) to provide an overview of facilities management within the NZDF. OPUS reported that, while there are many good aspects to the NZDF’s facilities management, the existing management structures might lead to sub-optimal resource allocations in the medium term.
33. In general, the estate is fit for its intended purpose, but the DCARR identified a need for significant up-front investment and ongoing expenditure to restore some facilities, and to maintain them at an appropriate standard. The DCARR estimates that a total of $302 million would be required for upgrades and replacements over the next 10 years, with a further $148 million to repair and restore existing infrastructure. The NZDF does not have the management capacity to undertake a major upgrade programme in the short term, and any restoration must be undertaken over a period of years.
34. The DCARR concluded that:
    1. the existing infrastructure is adequate to support increases in personnel required for the Navy to support the Protector fleet;
    2. the Air Force infrastructure, developed as envisaged in Project Takatini (the consolidation of Air Force operations at Ohakea) is adequate; but
    3. army infrastructure is inadequate to meet the increases in numbers needed to meet capability requirements. New investment will be required as Army personnel numbers increase.
35. There are two major and interrelated policy issues that need to be addressed. The first is the establishment of a clear over-arching strategic direction to guide the long term development of the estate to match the future requirements of the NZDF. The 1997 Real Estate Review and subsequent Real Estate Consolidation Strategy have been partially implemented, but there remains a clear gap in the strategic direction available to property and facilities managers.
36. First, policy decisions are required on the future of the NZDF housing portfolio (2548 houses, with replacement value of $264 million), and on the future uses of the Army bases at Papakura, Waiouru, Linton and Burnham. These decisions will have significant impacts on personnel and may affect recruitment and retention in the future.
37. Secondly, policy decisions are required on the condition and standard of maintenance of the Defence Estate. Although the overall responsibility for policy and planning lies within the HQ NZDF Resources Branch, real estate decision-making is not embedded within high-level NZDF resource allocation processes.
38. Property management standards and approaches have differed across the NZDF. Constraints on capital funding have skewed expenditure towards operating funding (that is, towards the maintenance of existing buildings and away from the capital expenditure associated with replacement or redevelopment). It is apparent also that there is a disconnection between a top-down resource allocation process, and a bottom-up, locally-based needs assessment process.
39. The recently formed Joint Property Forum is a positive step that can be strengthened by having a formal mandate. Implementation of the Integrated Land and Facilities Management System and the consolidation of Property Management within the Joint Logistics Support Organisation should bring further improvements. The DCARR considers that real estate and infrastructure management can be further improved, provided that an overarching Real Estate Strategy is formulated within the overall NZDF Strategic Plan.
40. Existing practices run the risk of inefficiencies in resource allocation and facilities use. In order to reduce this risk, the DCARR considers that expenditure and investment in the management of the Defence Estate should be considered as “mandatory” not “discretionary” – that is, as an inescapable consequence of owning real assets, not a deferrable option. As such, it should be guided by the same principles that govern the management of all other investment and expenditure decisions in the LTDP and the Minor Capital Programmes. Managing life cycle costs is just as relevant to the defence estate as it is to major items of military equipment.
41. The DCARR recommends:
    1. that the NZDF should develop a comprehensive Real Estate Strategy aligned to its over-arching Strategic Plan; and
    2. in the context of the Real Estate Strategy, a comprehensive housing and accommodation assistance policy needs to be developed, which clarifies the intent of housing assistance and identifies future requirements for defence owned accommodation.

Efficiency Opportunities

42. As part of its review, the DCARR sought to identify ways by which the NZDF could absorb costs within its baseline, without reduction in quality and quantity of outputs. The government has already determined what its policy objectives are, and what the NZDF’s force elements and major platforms will be to achieve that policy. International standards and expectations govern the management of “military” capability. Accordingly, the DCARR concentrated on “corporate” activities, and the high-level opportunities for efficiencies.
43. The NZDF has been actively pursuing cost reducing efficiencies as a means of coping with cost pressures over many years. The DCARR noted, however, that these initiatives are unlikely to deliver cash savings from the baseline; they are instead being used to maintain current capability within the existing resources. The initiatives include the property rationalisation programme, the establishment of the JLSO in 2005, the development of the Joint Information Systems Agency (JISA), and the further embedding of the Capability Management Framework (CMF) in respect of procurements.
44. Further initiatives may be undertaken – for example in supply chain management improvements, and in shared military services – but given competing priorities, resources are not currently available to undertake all these projects immediately. In common with the other efficiency initiatives described above, there will be an initial resource cost to establish the programmes that will eventually realise the efficiencies.
45. The DCARR endorses the initiatives already in place to manage cost pressures, and recommends that the NZDF continue to pursue opportunities for further efficiencies.

Policy Advice

46. Defence policy is developed by the Secretary of Defence in consultation with CDF. The Ministry has specific responsibility for advice on defence and international defence relations at governmental level, and for purchase advice on NZDF output policy effects. The Secretary and the CDF also have a number of joint responsibilities for which the Secretary, to discharge his share of those joint responsibilities, requires a policy advice capability.
47. The Terms of Reference required the DCARR specifically to assess the capability of the Ministry to support the government’s policy process. The DCARR commissioned external consultants to canvass the views of stakeholders and report their own conclusions. The DCARR also drew on previous internal and external reviews in making their assessment.
48. The consultants reported that stakeholders generally acknowledged recent improvements in the quality of policy advice. The most significant issue for stakeholders was the shortage of experienced analytical staff within the Ministry’s Defence Policy and Planning Unit (DPPU). This shortage fell into two general categories:
    1. the imbalance between the numbers of junior and senior analysts in the area of strategic policy; and
    2. the absence of certain specific technical policy capabilities; including expertise in areas such as military technology, cost modelling, cost–effectiveness analysis and strategic HR modelling.
49. The DCARR recommends that the Ministry of Defence should act to strengthen its policy capability to provide “purchase advice” to the government on the policy effects of NZDF outputs, including strategic planning, the alignment between outputs and policy, the assessment of capability choices in terms of their contribution to policy and their value for money and the strategic level allocation of resources to outputs.

Output Classification

50. As part of its review, the DCARR examined the existing output classification, and the history of its development since 1991, in order to determine whether an alternative structure might better reflect the nature and scope of service to be provided by the NZDF. The existing “force element” based structure has evolved gradually since 1997/98, after a number of earlier structures had been tried and found to be inadequate.
51. The DCARR considered two alternatives, a reduced set based around security challenges, and an alternative set based on “capability groupings”. These were assessed against a framework of accountability, parliamentary control, aggregation, usefulness to Ministers’ purchase decisions, risk, and usefulness to effective management. Account was taken of the likely impacts of pending changes to the Public Finance Act.
52. The DCARR concluded that the alternatives were not superior to the existing model, having deficiencies in relation to accountability, the management of costs and alignment with command responsibilities.
53. The DCARR also concluded that there is scope for improving the way in which current output plans reflect the deployment histories of the force elements associated with each output class, so that the readiness requirements placed on them reflect the realities of the deployment cycle and the time needed for regeneration.

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