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NAVY ENGINEERING BULLETIN MARCH 2003 5 An Essay on Reform in Australian Defence Industry The Government’s objective is to have a sustainable and competitive defence industry base, with efficient, innovative and durable industries, able to support a technologically advanced ADF. Defence 2000 1 LIEUTENANT ANDREW REICHSTEIN RAN Defence acquisition over the last ten years has seen considerable reform, in relation to the way Defence interacts with Industry and the involvement of Australian Industry in providing capability. This essay will provide a history on the previous reform process and will address the next range of reforms that are to take place in the Regional Defence Industry. It will also discuss what the implications will be regarding the delivery of capability and the provision of in-service support. Reform in the Defence Acquisition Process and Defence and Industry relationship was first attempted in 1992 with the release of the "Defence Policy and Industry Report" by Roger Price. The report continually stressed the importance on Australian Defence Policy being based on self-reliance. In addition to this it highlighted the reliance that the Federal Government was to place on the Defence Industry to maintain and develop Australia's Defence Force, as was stated in the 1987 White Paper. These statements were not necessarily ground breaking at the time, as Defence Industry had seen a considerable increase in Australian Industry Involvement (AII), with the procurement of the Collins and ANZAC platforms, and the upgrades of various Airforce platforms. Along with Jindalee Operational Radar Network (JORN) and others, these projects were reliant on AII as the prime systems integrator. In particular with the ANZAC, Collins and JORN capabilities, the Australian Defence Force (ADF) was for the first time the "parent" capability manager for such platforms. This in itself has resulted in considerable cultural changes both within Defence and also Industry. It was with the latter that this report attempted to address the bridging of the gap between Defence and Industry for acquisition and in-service support. However the only real change that occurred as a result of the Price report was for Defence to release forward planning information for Defence capital investment programs to Defence industry, along with a continued increase in AII. 2 In 1998, Senator Bronwyn Bishop, Minister for Defence Industry, Science and Personnel, released the "Defence and Industry Strategic Policy Statement". Unlike the report in 1992, this was a whole of Government approach to a Defence Industry Policy. 3 Once again it promoted and stressed the requirement for cultural change within both Defence and Industry. The policy highlighted the requirement for both Defence and Industry to work closely together in order to maintain a sustainable Defence industry base. Under the cover of "Team Australia" it laid down six strategies that were required for change improvement: • Integrate industry into capability development; • Enhance industry's contribution to the nation's capability edge; • Reform procurement; • Establish new ways to involve Australian industry in Defence business; • Increase Australian exports and materiel cooperation; and • Commit to cultural change and improved communication. 4 THE NEED FOR ANOTHER ATTEMPT AT REFORM In addition to the above strategies the "Defence and Industry Strategic Policy Statement" stated that one of the
6 NAVY ENGINEERING BULLETIN MARCH 2003 components of Australia's Strategic Policy was to have an established knowledge edge as our highest capability development priority. Four years have passed since the release of this policy statement, and whilst a considerable amount of change has taken place, and industry has become more actively involved and informed in the Defence Acquisition Process, there needs to be questions about whether the ADF has access to a sustainable knowledge edge within the resources of local industry. With the limited Defence Budget on offer to fund major capability development type projects, a competitive tendering process will always eventuate in one or more companies missing out on providing their service. Therefore the answer whilst being no fault of local industry is 'probably not’. As part of obtaining the "best value for money" this is seen as a good thing, as in theory the company with the most competitive offer and solution should win the contract. Whilst this generally is the case, if the successful company has not had recent work in the industry that they have just been awarded a contract for, they will need to undergo a comprehensive recruiting and training program. This in itself takes considerable time and does not necessarily allow for the skill sets developed from previous projects of a similar nature, performed potentially by another contractor to be evolved or utilised. This can result in the same problems occurring as those on earlier projects of a similar nature, resulting in no establishment of a knowledge edge. Aside from poor contract development and political decision making regarding capability implementation, it could be said that the deficiencies in the required skill sets are the result of budget and schedule overruns that subsequently reflect poorly on the Defence Materiel Organisation (DMO). THE PLAN BEING PUT IN PLACE FOR REFORM As highlighted previously, the ADF does not have a Defence Budget to effectively sustain multiple Defence Industry capability providers for common platforms and services. Nor can it continue to expect the high level of service from industry when no effort or ability is being put in place to develop industries that are able to maintain a "knowledge edge". In the past Defence has received considerable pressure from the media, politicians and the general public, regarding our poor acquisition track record, with projects being late and over budget. In order for Defence to achieve the best results from industry without the constant and considerable cost over runs, changes in the approach to Defence Acquisition are required. The question for the Government is to decide how best to respond to such a situation, should they allow market forces determine the Naval shipbuilding sector's future or should they intervene and guide industry to try and reduce the risks. 5 The recent Department of Defence Naval Shipbuilding and Repair Sector Strategic Plan, considers the merits of forming strategic alliances between Defence and Industry, as a means of achieving superior performance, value for money and flexibility 6 . In particular this plan as the title suggests, primarily addresses the shipbuilding industry, but alike alliances with other sectors of Defence Industry are also being considered. The likely approach will consist of Defence developing a long-term relationship with a number of Australia's 'tier 1' prime-contractors, which will in turn be actively supported by expected open competition at the 'tier 2' subcontractor level. As part of this two-tiered approach, new accountability and transparency measures would need to be implemented to ensure value for money outcomes. 7 THE POTENTIAL IMPLICATIONS AS A RESULT OF REFORM The consolidation of Defence Industry into a smaller group will result in a reduction of duplicated services/functions. As it is more likely that the smaller group will have more work, their overhead and infrastructure costs will be lower, which should flow onto Defence as a cost saving. The skill sets of personnel within the various sectors will be able to be maintained and continually evolved, as a result of the longerterm work and security in their particular sector. This in turn should lead to a highly skilled work force that is able to meet the challenging demands that Defence procurement requires, along with achieving consistency in the management of the projects. 8 The costs associated with recruiting and developing the required skill set necessary to perform the tasks of the awarded contract are considerable. With a consolidated Defence Industry, skill sets could again be maintained, the recruiting requirements would not be required for new projects and a career path could be established for personnel in the industry. 9 With a single source supplier arrangement, costs associated with the tendering process would be reduced, and the time taken for the tendering process to take place would also be significantly reduced. This would provide the ability for Defence to implement capability to the warfighter quicker and more cost effectively. 10 The current capability development process initially involves the development of requirements and the formulation of the costs involved to implement the requirements. By not having a close and open relationship with industry, any cost estimates that are obtained during this process are generally
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