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Hunn Review: 30 September 2002

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Chapter 6 (continued)

Review findings

Roles and Responsibilities of the Secretary and the CDF

  1. The review has identified a number of issues concerning the roles and responsibilities of the Secretary and CDF as currently assigned in defence legislation, and embedded in the current structural arrangements of and between the MoD and NZDF.
The Separation of Roles and Responsibilities
  1. In some key aspects the separation of responsibilities and roles expressed in Defence legislation has not worked well in practice. These concern the underlying rationale for the separation in the first place, the particular roles and responsibilities that were divided, the goals sought by the division, and the unintended consequences that have resulted from the separation.
  2. At its most basic, it is not surprising that the defence organisations have failed to perform as was intended. The defence function has been divided into two in an attempt to resolve competing organisational goals -to separate policy from operations, to establish contestability, and to avoid policy capture by the military. This compromise of logics has led to a muddled definition of roles and responsibilities. At one and the same time, the structural arrangements managed to create separate CEs, give one the role of checking on the other, set both up to contest each other, give each powers to partially counter-balance the other and yet leave multiple dependencies between the two. The resultant pulling in different directions has generated tensions and transaction costs that have required committed management on the part of successive CEs to make the arrangements work at all.
Reasons for the Separation
  1. The Defence Act's division of responsibilities, and the interpretation of those responsibilities, reflect a theoretical and practical oversimplification, which is at odds with the actual contributions that civilian and military advisers and managers make to achieve defence results -be they strategic policy, strategic management, operations or services.
  2. The division of responsibilities mandated by the 1990 Act, created a vertical separation, placing the CDF and military staffs on one side and the Secretary and a civilian staff on the other. By dividing responsibility at the CDF and Secretary-level, the split did not match with the most sensible division point in the organisation as a whole -between policy and strategic management on the one hand, and operations and services on the other. The more meaningful division point where operations and services are actually managed and delivered in the Defence Organisation would have been at a point somewhere below the Chiefs of Staff and at the Deputy Secretary of Acquisition level.
  3. A second rationale was that of separating the responsibilities for delivering annually purchased outputs, on the one hand, and managing the long-term ownership issues of defence on the other. Here again, making a military officer responsible for the former and a civilian official responsible for the latter belies the fact that both have crucial, complementary contributions to make to both purchasing and ownership advice and results.
  4. A split on this basis would imply that there is little connection between the strategic capacity required to deliver outputs, and the quality, quantity and cost of those outputs. The reality of practical experience is that there are significant connections. Yet, the effect of the split has been to handicap and complicate the Secretary's ability to provide input into purchasing advice and decisions, and the CDF's ability to provide input into ownership advice and decisions.
  5. As I noted earlier, the Act sets up two CEs -and organisational structures to support them -who are responsible for one set of outcomes. Each must depend upon the other to achieve their separately required results. Because of the artificiality of the separation, in some areas the CDF and the Secretary have been made accountable for results without having authority over critical inputs upon which the quality and effectiveness of results depends. The legislation did not cleanly divide the defence function between two separate organisations that were each organically complete and independent -as it is, for each CE to carry out his responsibilities, he requires contributions from the other.
  6. A third reason for the separation of responsibilities was that of creating conditions of contestability of advice. In fact, the current apportionment of responsibilities has handicapped both CEs in providing such advice. The philosophy underlying the Act presumes independence on the part of the Secretary in developing and presenting his or her policy advice. Yet, the State Services Commissioner notes in his 2001 Annual Report that: "The separation of policy advice and service delivery functions can be successful only if the operational information needed for effective policy formation and evaluation is available to, and readily inte1pretable by, policy advisers. If this is not the case, any separation will over time seriously weaken the policy advice function". From the Secretary's perspective, this is the case with the existing arrangements between the MoD and NZDF.
  7. In his legal analysis, Professor Palmer comments that the 1990 Act fails to provide the MoD with an adequate mandate to obtain information from the NZDF, noting that this inability to require the NZDF to provide information could affect the Ministry's ability to provide quality advice. There is no doubt that this is an important issue. One of the MoD's key reasons for being is to give Ministers effective and well-informed advice on defence matters. In some areas, including defence policy and strategy, operational deployments, capital investment, evaluations, and military capability requirements, access to information generated within the NZDF is the starting point for the preparation of well-informed policy advice.
  8. At the same time, the Secretary is responsible for developing and retaining a staff capability that can supplement and complement NZDF information and knowledge with broader-based knowledge and thinking particularly in defence policy and strategy, international security affairs, bench-marking and best practice comparisons, commercial management and decision-making procedures. Access to relevant information from military and other sources, and knowledgeable staffs operating in a high performing culture are both required to formulate effective advice that meets Government's expectations.
  9. In pursuing the goal of contestability in policy advice through a separation of powers, the Act is flawed because it specified different responsibilities for CDF and the Secretary. If contestability was to work, then logically both the Secretary and the CDF would need to be responsible for contributing their own separate advice on defence policy, military capability requirements, capital investments, purchase levels etc. In fact, the Strategos Report recommended provision for the CDF to contribute his policy advice in at least one area, when it remarked that as well as "Defence policy being primarily based on civilian input...fit required} a flow of predominantly 'military' advice to the Government...so that the military implications of any policy moves are clearly understood. An important aspect of this is input on the military risks attendant upon Defence commitments and decisions on capabilities".3
  10. The flawed approach to contestability contained in the 1990 Act has created a difficult climate for building and sustaining effective working relationships between the Minister and his or her officials. It has equally complicated the maintenance of effective working relationships between Secretaries and CDFs. At present, the Minister can receive not only competing advice streams, but advice by one official on the advice provided by the other. Or the Minister can receive advice on an issue from only one official, uninformed by advice from the other. The balance of value must be questioned in terms of additional insights received by Ministers against the cost in trust between Ministers and their principal advisers and between those advisers themselves.
  11. The theory of contestability as a healthy competition of ideas makes sense as a means of generating alternative perspectives. In practice, the method adopted in the Defence Act has resulted in the drawing of boundaries between the MoD and NZDF and within NZDF which stymie information sharing. Positions become entrenched in isolation from useful insights by others, contributing to an adversarial and separatist culture.
  12. These negative effects should be placed in the broader context of international experience. In the countries studied, contestability is more usually achieved through inputs from outside the Defence Organisation. For example, in the US, Congressionally-mandated external panels of independent experts review departmental policy documents - a National Defense Panel of non-affiliated experts is established to assess Department of Defense Quadrennial Defense Reviews. Congress has also established an independent Commission on National Security to prepare alternative national security strategy documents.4 Similarly, in the United Kingdom and Australia, wide-ranging public consultations and public submissions have been used to broaden the range of inputs into defence and national security policy-making, in addition to the establishment of specialist bodies.
  13. It is notable that what has actually happened over the twelve years since the passage of the Defence Act, has been a steady erosion of its stated purpose. After an initial period of debilitating hostility when determined attempts were made to create "arms-length" organisations, successive Chief Executives have looked for ways to enable their organisations to work together. As noted in Chapter Three, for example, in the defence policy area, international defence relations staffs from the NZDF have been integrated with MoD staffs. While these are perfectly sensible arrangements and have proved effective, they run counter to the concept of separation on which the Act was based -creating organisational structures which are at odds with Parliament's supposed intentions.
Particular Roles and Responsibilities
  1. Submissions to the review have raised questions as to whether the right responsibilities and accountabilities have been assigned to the two CEs. These questions asked whether there was an uneven balance of responsibilities between the Secretary and the CDF (the Select Committee), whether advice on output purchases and evaluations should be re- connected with defence policy responsibilities (State Services Commission), whether the CDF should have responsibility for force structure proposals (Select Committee) or whether the Secretary should have authority to participate with CDF in NZDF resource management and operations, or to take over responsibility for NZDF resource management (the Secretary, PM&C).
  2. The review has looked at the questions raised by the submissions in four particular areas of responsibility:
    • advice on the defence policy relevance of NZDF output purchase proposals;
    • defence resource management;
    • the setting of military capability requirements, development of capability investment cases and the acquisition of military equipment, and;
    • evaluations of defence performance.
Advice on the Defence Policy Relevance of NZDF Output Purchase Proposals
  1. The provision of advice by the Ministry on NZDF output purchases is an integral component of advice on defence policy. It is important that the Minister receive advice on whether the purchase proposals he is being asked to endorse are likely to support the achievement of the Government's defence policy objectives. The CDF should receive this advice also.
  2. This is particularly the case with some NZDF outputs, where the Minister is purchasing military capabilities at specified levels of readiness to perform agreed military operations. Determining the level of readiness for operations is a matter of military professional competence. Another type of judgement is required to assess whether any particular level of readiness for operations will meet Government's policy goals, or whether, after the fact, the levels of readiness for operations purchased from the NZDF did achieve these goals.
  3. It is my view that the Secretary should exercise the responsibility for reviewing and advising the Minister (and the CDF) on the extent to which NZDF purchase proposals will deliver defence policy objectives. The Defence Act does not prevent this. Given that such outputs also have a cumulative effect, and that increasingly, multi-year budgets for purchasing are being set, the Secretary should also review the effectiveness of these purchases in terms of their impact upon longer-term outcomes for New Zealand's national security.
Resource Management
  1. It has been noted by some submissions that resource management is the responsibility of the civilian chief executive in most other Western countries. This is no doubt the case, but "most other Western countries" have not adopted output-based resource management and delivery systems such as those that are now fundamental to the management of New Zealand's public sector (although many countries are moving in this direction), nor have they created two legally separate organisations with specified financial, resource, and delivery responsibilities. These systems are designed, under the 1989 Public Finance Act, to align resource management authority with those who are responsible, and who will be held accountable, for the delivery of goods and services.
  2. While these are fundamental differences, nonetheless the review has looked closely at the practice in Australia, the UK, Canada and the US. In Australia, the Secretary has responsibility for resource management in the ADF, but the Chief Financial Officer and the Deputy Secretary Corporate Services report to both the Secretary and CDF. The UK higher defence structure is based on the concept of collective rather than individual responsibility and accountability. Resource and programming issues are administered and managed by a Joint Central Staff. This staff has twin reporting lines to both Defence Chief Executives, with the Permanent Under Secretary being designated as the Principal Finance Officer of the Department. In Canada, the Deputy Minister has responsibility for policy, materiel, infrastructure and the environment, finance and corporate services and civilian personnel5. In the United States, responsibility for resources rests with the Deputy Secretary of Defense and the Secretary of Defense, both of whom are political appointees, the latter being in Constitutional terms equivalent to New Zealand's Minister of Defence.
  3. The review has found that the management practice adopted in the 1980s aligning resource management and delivery responsibilities has worked in the case of the CDF and the NZDF. The enhanced ability of the NZD F to manage these tasks has been one of the acknowledged success stories within Defence and recognises that those responsible for operations are best able, and should have the incentive, to achieve economies and efficiencies. I am assured by Treasury that in practice this has happened so that there would need to be major advantages in terms of effectiveness and quality to justify changing the current arrangements. Such advantages are not apparent.
Military Capability Requirements Setting, Development and Acquisition
  1. The Select Committee was of the view that responsibility and accountability for determining the military capabilities required to achieve defence policy, and developing the business cases to support investment in them, should be assigned to the Secretary,. The review has found that there are various perspectives that need to be taken into account. For example, both the Secretary and the CDF have an interest in, and value to add to, the process of formulating advice on the broad military capabilities needed by the Defence Force to deliver the results required by the Minister.
  2. Throughout the definition, development and acquisition of military capability requirements, there is also a constant need for information that must come from both the NZDF and MoD staff as well as from external sources. As capability development proposals mature, issues of acquisition feasibility (such as availability of a competitive range of manufacturers; environmental and legal considerations; technical specifications etc) must be factored into advice to Government. Qualified acquisition practitioners and military personnel with relevant technical and operational experience, are needed to generate this policy advice.
  3. Finally, once the business case has been prepared, sent to Government, and decisions made to acquire equipment, there is a need for qualified project teams to undertake the management of acquisition projects. Under the current arrangements, the Secretary is responsible both for policy advice on acquisitions as well as for the provision of acquisition services to the NZDF. This area of defining, developing and acquiring military capability requirements would seem to be one where both the Secretary and the CDF should function as a partnership -the Secretary to be assured that the capabilities being defined and developed are those that are most relevant to defence policy objectives, and the CDF to be assured that these capabilities will provide him and his successors with the capacity to deliver operational results effectively and safely. Indeed, these functions appear especially well suited to being carried out by joint, integrated staff groups under the authority of both the CDF and the Secretary.
Evaluations of Defence Performance
  1. Responsibilities for evaluations of defence performance raise further anomalies between intentions on the one hand and practice on the other. The 1990 Act assigns responsibility for audit and evaluation to the Secretary. This was consistent with the intention to position the Secretary and the MoD as an arms-length examiner and assessor of the NZDF. While MoD's performance is assessed externally by the State Services Commission and the Treasury, the CDF and the NZDF, who depend upon the defence policy products and equipment supplied by the MoD, have no authority to evaluate the MoD's performance, yet the Secretary is responsible for auditing his own agency's performance in managing acquisition projects.
  2. Over the twelve years of operation, there have been continuing difficulties in fulfilling the role and purpose of the evaluation responsibilities of the Secretary in respect of the NZDF. On the one hand, Audit New Zealand and the Office of the Auditor General normally have the task of carrying out independent audits of compliance and effectiveness for Government departments and agencies. On the other, successive CDFs have evolved their strategic management systems to include performance measurement systems for the delivery of outputs, financial compliance, and efficiency and effectiveness evaluations. These performance evaluations - although not as comprehensive and challenging as perhaps they should be - have been built into management systems to provide NZDF senior executives with information for management improvement and efficiency.
  3. Almost inevitably, MoD evaluations have replicated the type of program evaluations conducted by Audit New Zealand and the Office of the Auditor General. And in at least one instance (the OAG Review of the Light Armoured Vehicle Project), the Secretary employed the OAG directly. Alternatively, they have replicated audits and evaluations that are normally undertaken by the NZDF's own internal auditors.
  4. The effect of establishing the evaluation of "any function, task or responsibility of the NZDF" as one of the Secretary's prime functions, was to create a climate of mistrust. It implied that unlike any other government agency, the NZDF was not to be trusted to carry out its own programme of evaluations validated by the Government's auditing agency and supplemented with external evaluations by OAG. This perception of mistrust was reinforced by early attempts by unqualified MoD civilian auditors to evaluate professional military standards for battlefield performance and the training required to achieve professional standards. With the benefit of hindsight it is now apparent that such an approach would be unlikely to be acceptable to military personnel as members of a profession with responsibilities for professional standards.
  5. In order to overcome the problems, the Secretary and CDF of the day were encouraged by their Minister to work out a co-operative arrangement by means of which both could meet their professional and legal obligations. The result was a Memorandum of Understanding between the MoD and NZDF, agreeing to have professional standards assessments conducted by the NZDF on behalf of the Secretary. Subsequently, the CDF established the position of Inspector General for this purpose.
  6. My impression is that the NZDF performance measurement systems have not yet developed assessments of professional achievements and standards to the level that is necessary for full quality assurance. OPRES -the NZDF's Operational Preparedness and Reporting Evaluation System -while a comprehensive measurement system, is more compliance rather than performance oriented in terms of the delivery of NZDF outputs. I understand OPRES was to have initiated a broader NZDF performance measurement framework that would have included a small, dedicated NZDF evaluation unit (supplemented by international military evaluators), responsible for realistic tactical evaluations and tests of unit capabilities. This unit was to have reported directly to CDF. Service-specific evaluation teams responsible for assessing the professional standards and effectiveness (rather than just efficiency) of training and support functions were to have reported to the Chiefs of Staff and through them to CDF.
  7. I have been informed that resource constraints have prevented the implementation of the more robust performance measurement regime. Yet, if CDF is to fulfil the requirement for professional standards assessments, OPRES would have to be taken to the higher stage of development first envisaged.
  8. As noted above, since the mid-1990s, the Ministry's Evaluation Division has been tasked by the Secretary, at the suggestion of the then CDF, to conduct reviews of the NZDF's outputs, in an attempt to find middle ground between efficiency and effectiveness management evaluations of value to the NZDF on the one hand, and the OAG / Audit New Zealand type audits on the other. Only one round of such evaluations has been completed and again these tended to focus on compliance in terms of NZDF's Purchase Agreement rather than on performance as such (although in a number of instances, the reviews were useful in pointing up the lack of policy guidance to drive the outputs).
  9. This early work should now be built on and NZDF outputs evaluated in terms of whether they contribute appropriately to defence policy objectives (including force structures and capabilities, training support and sustainment etc). Other areas where the evaluation function could add substantial value could include the assessments of equipment purchases in terms of whether they have generated the changes in capability and defence policy results foreshadowed in the business cases presented to Government; of the likelihood that NZDF output proposals will generate defence policy results; and the contributions which both NZDF and MoD outputs, (including the policy functions in both organisations), make to achieving broader national security outcomes.
  10. It is clear that these defence policy/capability evaluations would require a highly qualified staff with knowledge and competence in defence policy, international defence relations, and military operations. This raises the question as to whether such evaluations should be seen as part of the defence policy advice role, rather than a separate evaluation role, or whether they would be better performed by a joint integrated staff group, with the possible addition of qualified staff from relevant departments such as MFAT.
Shared Rather than Divided Roles and Responsibilities
  1. Most of the questions that have been raised concerning the roles and responsibilities of the Secretary and the CDF take us back to the assumption that there is a logical basis for dividing defence functions and assigning them to either one or the other. In hindsight, this was an invalid premise because it did not recognise the interdependencies of the roles and responsibilities of the two.
  2. Defence processes, whether in defence policy or operational areas, are closely interlinked. The Act set out to avoid the risk of 'policy capture' of the largely civilian Ministry by the service providers (the Defence Force). Experience has shown the more effective goal would have been to develop an institutional framework for ensuring that high quality policy advice could be generated, based on balanced and complementary inputs. Strict interpretations and fierce protection of the boundaries have resulted in an organisational structure that has inhibited the flow of information needed by the Secretary to lead, (but not exclusively generate) the policy advice process and restricted the ability of the CDF to contribute essential components to it.
  3. When we look at our international partners, the point that stands out is the degree to which there is a managed balance of responsibility and accountability between the two Defence Chief Executives. These balances have not been achieved by separating and apportioning equivalent power bases of authority that form a "checks-and-balance" framework. Rather, these Defence organisations have adopted a variety of mechanisms for sharing responsibility and establishing working partnerships between civilian and military senior executives. Preference has been for approaches that recognise there are activities and results for which it is sensible for a civilian executive to take the lead, but with appropriate contributions from a military executive. Equally, there are other results and activities where it is sensible for a military executive to lead. It is also recognised that there are a number of activities and results where it is critical both executives share equally in the decision-making. This is reflected particularly in both the UK and Canadian practice of specifying "sole", "prime", and "shared" responsibility and accountability relationships across the senior executives of the national Defence Organisation.
  4. To succeed in carrying out their roles and responsibilities, the Secretary and the CDF must work together, and therefore need equivalent institutional powers that can assist them both in meeting their obligations. The effectiveness of the Defence Organisation rests upon accepting there is significant overlap of functions between the Secretary and the CDF, which creates a need for shared, rather than separated roles and responsibilities, in those areas where this occurs.
  1. New Zealand Defence Resource Management Review (Wellington, Strategos Consulting Ltd., 1988, p. 79). It is interesting to note that the Canadian CDS is accountable for providing similar advice to his Minister.
  2. See Annex D: Comparative Studies: Higher Defence Structures in Australia, United Kingdom, Canada and the United States.
  3. It is noted in Annex D: Comparative Studies that in Canada, the Vice Chief of the Defence Staff plays a unique role in resource management and long-term capital planning in relationship to the Deputy Minister - the VCDS is the senior resource manager and the civilian Assistant Deputy Ministers (equivalent to New Zealand deputy secretaries) work through him to the Deputy Minister and the Chief of Defence Staff. (D.59).

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