PODCAST: Shaping Victoria’s defence industry

Phil Tarrant:

Good day, everyone. It's Phil Tarrant here. I'm the host of the Defence Connect podcast. Thanks for joining us today. Gonna have an interesting chat. I've invited someone into the studio who is playing a pretty important role in terms of shaping Victoria's defence industry, particularly at the time, with a lot of shifting sands in terms of a workforce which is hungry for manufacturing work and a lot of projects underway there, including Land 400, which is going to shape, I guess, the future for Victoria as a defence state moving forward. Greg Combet, thanks for coming along.

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Greg Combet:

Pleasure, Phil. Thanks for having me.

Phil Tarrant:

You're into your second term now as the defence industry advocate for Victoria. You've been reappointed, I think it was in April this year, they sort of said yes.

Greg Combet:

A visionary decision.

Phil Tarrant:

A visionary decision. Said, "Keep doing what you're doing. You've got another couple of years to do what you're doing." What are you exactly doing down in Victoria, right now? What are you doing for the defence industry down there?

Greg Combet:

When I started about 12 months ago it was to just reconfigure and refocus the state government's work in relation to the defence industry. It had long had a presence, and of course, the manufacturing sector in Victoria is the largest in all of the states and it's always had an important role in the defence industry. For example, the manufacturer of the Bushmaster at Bendigo by Thales and the Williamstown Naval Dockyard, and so on. Big SME sector. But we'd seen in recent years, of course, the concentrated effort of the South Australian government, which to the credit of Mike Rann as premier a number of years ago, he knew the auto sector, the commercial automobile manufacturing sector, was going to be phasing down. It's just sub-scale in Australia. Mike Rann decided to concentrate the South Australian government efforts on defence.

I think the Andrew's government in Victoria, of course, is profoundly affected by the closure of the auto sector, with Toyota and Ford and General Motors engine plant in Fisherman's Bend all to close, with big impact flow and impact to the auto supply chain. And so that was the context for asking me to come and work with the state government and to start to think about how we could try and build up the presence in defence. That's been a key focus. The last year's been about strategy and branding. We've got a branding campaign for Victoria that's quite visible around Canberra, where the decisions are made in the defence industry. And regathering with the SME community in Victoria as well to focus efforts on what major projects really are going to be the most benefit and to concentrate our effort in Canberra and with the Defence Department on those major projects, and Land 400's obviously a big one.

Phil Tarrant:

You've come to this role that you have right now with a vast array of different skills, having navigated a career through the trade unions, through parliament down in South Australia doing work with the manufacturing auto industry there. How do you find, now that you ... life after a formal role in politics into what you're doing right now, and as well as the work you're doing in defence, you're doing some stuff for the superannuation sector and business in general. When you look at Australia's defence industry and you look at what Victoria's doing versus some of the other states, and the competition there is quite intense, do you feel quite ambitious about what we can achieve as a nation in terms of our ability to deliver defence projects? And how do you think that competitiveness is either going to enhance it or potentially pull it apart between the states?

Greg Combet:

Well, you covered a bit of territory there-

Phil Tarrant:

Yeah, I did.

Greg Combet:

-but I am ambitious about our capacity as a country to build our engineering and manufacturing capability in relation to defence. Most countries do that. It's an area that, notwithstanding we've got an open trading economy, defence, because of national security issues in particular, and the need to have resident capabilities to support the ADF, it's an area that has some natural level of economic protection, if you like. You can't just go and contest the manufacturing of a major defence project that easily. We can, I think, leverage the immense amount of expenditure that the Commonwealth government does make with taxpayers' money to get a better economic outcome. I felt that when I was a minister and in the portfolio, and we instituted a number of industry programmes then.

I certainly welcome the Turnbull government's ambition to leverage a $95 billion naval shipbuilding programme over coming decades, to leverage that for economic benefit. I'm strongly supportive of that. That's essentially my role in Victoria, is to look at all of these things and think strategically about the best way to utilise the capabilities in Victoria, the resources the state government might have for the economic development of Victoria and jobs growth. And to be able to achieve that, I think you do need to have experience of government at the federal level, experience of how defence operates, how defence contracting works, knowledge of the SME community in the defence industry, knowledge of the defence primes, contacts with the CEOs. The trade union movement is important in that regard. Economic policy.

Fortunately, in my background ... I started out as an engineer, actually, in the coal mining industry, but I spent a lot of time, as you are aware, as a trade union official. I interfaced with the manufacturing sector a lot in my trade union work. I've restructured companies, addressed airlines that have collapsed in the form of Anset. I've got a lot of knowledge of how government works out of all my experience, so I hope to be able to bring that to bear to get a good outcome for the country, working with others and also in representing Victoria for the Victorian economy.

Phil Tarrant:

When you look at defence business now in Victoria, just some numbers here. Contributes about $8 billion for the state's economy annually. Has about 300 businesses involved employing about 7,000 people. They're pretty significant numbers.

Greg Combet:

They are significant numbers, and so when a naval shipbuilding programme of this scale comes along, including frigates, offshore patrol vessels and, of course, submarines, even though the shipbuilding itself, that is the large construction, putting together the modules, is to be done in Adelaide and to a much lesser degree in Western Australia, it is inevitable that many of the players and the SME community in Victoria ... and they're not so small, many of these companies ... they'll gain a lot of work. It's making sure that they're able to present their wares to the primes involved in those programmes and that there's knowledge from those overseas primes of the capabilities that we've got in Victoria, and that's part of my role, too.

Phil Tarrant:

When you look at the hierarchy of what you want to deliver to Victoria the state, what would be number one? Is it attracting the big programmes into the state to utilise the talent, the workforce, the infrastructure? Is that number one?

Greg Combet:

Number one at the moment is Land 400, which as your listeners will appreciate is a part of a major programme to renew the vehicle fleet for the Army. Phase Two of it is for 225 vehicles ... not a large number, but these are complex pieces of technology ... now, and Phase Three will follow with a further 400-odd vehicles. It's billions of dollars in production and then sustainment for many years to come for the Army. That's my number one at the moment. We're in a competition with other states, unfortunately, but with a project like this, this is how it's played out.

We're in a competition to attract the two down-selected bidders, that's BAE and Rheinmetall from Germany. Their vehicles are out being tested at the moment by Army. I'm in negotiations on behalf of the state government with both of those companies and presenting to them the infrastructure that we think would suit them to make a decision to locate, if either one were to win, to locate the Land 400 production facility in Victoria. We're deeply engaged with those two companies at the moment.

So that's top of the list, but really a key strategic challenge has been presented by the decision of the Turnbull government to locate the shipbuilding, as I indicated before, in South Australia and Western Australia. And I don't question that, but it has meant for Williamstown Naval Dockyard, which has got a long and very proud industrial history in Melbourne, that there's no shipbuilding work. It's currently mothballed. We've had to consider what the future of that would be and think differently about shipbuilding, and how the industrial capabilities and the scientific and research capabilities in Victoria might cooperate and participate in a national effort to deliver those shipbuilding programmes and especially the submarine.

So that's made a stink about the university and research capabilities that are in Victoria, which are of course, I think, without a doubt, the leading institutions in tertiary education and research and maritime research in the country. There's a really big opportunity to participate and build those capabilities as part of the defence industry in Victoria, as well.

Phil Tarrant:

With the Land 400, there's obviously a competition going on between the two down-selected vehicles, and that's quite intense. We cover it quite a lot on DefenceConnect.com.au. But in terms of you negotiating with those two major organisations to attract them into Victoria versus other states, what are those handful of things that you say, "You cannot get this anywhere else except for in Victoria?"

Greg Combet:

Well, I can't say too much about that at the minute, but I can say that as part of looking to transition from the automotive manufacturing sector, the state government last year purchased from General Motors, Holden, their Fisherman's Bend facility where the Holden engines have been manufactured for many years. It's about 37 hectares, very close to the port, heartland industrial area and very close to the CBD. Having purchased that site ... and it's adjacent to the defence science technology group facility in Fisherman's Bend ... we're pitching that site to both Rheinmetall and BAE.

We offered them the opportunity of many other sites in Victoria, including in Geelong for example, but Fisherman's Bend, I think, has certainly captured their interest. That's quite a unique opportunity because it's next to the DSTG. There's various suppliers in proximity. There's great transport infrastructure. There's existing industrial and office facilities that can be modified. I think that has some attractions and I hope to be able to secure the commitment of both companies, but we'll see. It's a stiff-

Phil Tarrant:

Any timeline that might happen-

Greg Combet:

It's a stiff interstate competition and I wouldn't place a timeline on it yet.

Phil Tarrant:

It's always good to know. We try and get this information, try your luck. What would it mean, do you think, if that were to happen? What would that do for your local SMEs in that area? Obviously job creation, but is there a ready group of people who could deliver components and knowledge and intelligence to this immediately, do you think?

Greg Combet:

Yeah, and a number of them would participate in a supply chain if Land 400 was located in Queensland, for example, too. But having it in Melbourne will give a greater opportunity, without any doubt, to the supply chain in defence vehicles, military vehicles, and of course, you've gotta remember, we've got Thales manufacturing the Bushmaster and Hawkeye at Bendigo. There's an established military vehicle supply chain. It's the natural state for Land 400 to take place, really. We've had the economic modelling done. And particularly if the Phase Two winner leads to Phase Three, or the Phase Two facilities where Phase Two is carried out leads to another company winning Phase Three and carrying it out in the same location, the economic benefits are significant and they're long-lasting, and that's why we're playing hard to win.

Phil Tarrant:

Can you give us a bit of an inside perspective of the competition amongst the states? Obviously, there's a little bit of backwards and forwards skullduggery going on amongst the states, in terms of-

Greg Combet:

Not on Victoria's part, I assure you.

Phil Tarrant:

Not from Victoria obviously, but we watch often with a bit of a smirk on our faces what happens. And obviously we get a lot of the inside information and we put it into context. But can you give us a little bit of an idea of how the states are working together? Yes, there is competition there, but I imagine it's stiff competition.

Greg Combet:

Well, there's no working together on Land 400, and largely because of the way the procurement has been conducted by the Commonwealth. The states were essentially invited to compete and to treat with the bidders to try and attract them. That's led to a less than optimal economic outcome, in my opinion. I've got a funny, I suppose, background for this because having been a Commonwealth government defence procurement minister, I know how inefficient it is to have the states competing in this way.

Actually, what it is is a cost transfer from the Commonwealth to the states. Instead of picking up any of the tab for the infrastructure, for example, defence shifts all of that to the states who are out there competing amongst each other. And the extent to which prime contractors then discount their tender price for the infrastructure that's laid on and the cash incentives that's laid on by the states, is moot, I think. And that's a less than optimal outcome for taxpayers. I think it would be far better to conduct procurement processes from a national benefit perspective. For defence and the federal government to be looking at it and saying, "Well, how do we optimise the economic outcome for the country? And therefore, to achieve that we'll conduct the procurement in this particular manner."

I think the Turnbull government's closer to that with the shipbuilding programme. Having said, "Well, there's been a lot of investment in infrastructure in Techport in South Australia. That's where the subs have been sustained, the Collins is being built. The state government's a keen participant. There's economic need in that state. The closure of the auto sector will hit hard in South Australia. Let's go with that." And to bring that out and announce that first up, that let's everyone sort of whinge and carry on for a little while but then focus on the real thing.

And so in contrast to Land 400, there is good cooperation between the stages around that. I'm talking to my New South Wales and South Australian colleagues, and Western Australia in particular, about how we can bring to bear the capabilities that happen to be resident in each of those jurisdictions. How we can bring them to the table and work together to deliver these immense, hugely complex programmes. The submarine is the biggest undertaking that this country has ever embarked upon, both technologically and financially. We're going to have to-

Greg Combet:

-all pull together. There's no room for any states versus states nonsense. There really isn't. We're going to need everyone to contribute what they can and for it to be effectively coordinated to successfully deliver the submarine in partnership with the French government, with DCNS, and with Lockheed Martin and the US government. It's going to be quite an undertaking so there is emerging understanding of the scale of it and the necessity for us to work together, which is a good thing.

Phil Tarrant:

And there's those conduits available to the states to discuss, engage, collaborate? It's all there, it's working? Or do you think it's incumbent on the individuals to make sure that they're more engaged than what they are?

Greg Combet:

It is incumbent upon the state governments and the Commonwealth. It's very important there's Commonwealth leadership and the defence officials who are involved in a programme like that to be thinking about it in this way. So there's individual commitment, but what's really important is that silly politics doesn't come in and blow it all up. Someone's marginal seat versus another marginal seat-

Greg Combet:

It does happen to get in the way and that's part of our democracy, but there just needs to be sufficient maturity, I think, to keep that where it is. Be mindful of it, but make sure people work together. Over the last six or eight months in particular, defence, and I think you mentioned, you've had Kate Lewis here, the industry official in the defence Department, and interviewed her. She's been leading a process where we do talk these thing through and I think that's very constructive.

Phil Tarrant:

That's good. So you can have a view of the defence industry in a particular way. We spoke about the diversity of what you've done in the past and how it gives you a certain set of skills to do what you're doing right now. When you look at defence businesses and those defence businesses that excel, SMEs in particular, what do they do which sets them apart from their peers? Is there a handful of things that they do extremely well?

Greg Combet:

That's an interesting question. I've had the opportunity, not just in this role but in previous ... my ministerial and trade union roles of visiting many of these companies. Oftentimes it's a privately-owned family company where someone, a patriarch in the background somewhere, has an engineering background and is an innovative, thoughtful, entrepreneurial person. They've built a business up. They've employed good people. And they've engaged ... not just in their immediate environment, but they've looked internationally ... they've engaged with primes. They've come to understand what the quality requirements might be that they have to meet. They get to understand how defence works. They come to grips with the fact that it can be pretty lumpy cashflow.

It's very difficult at times when you're providing services and goods to defence primes or you're somewhere in the chain and the money doesn't flow that quickly. They're good business people, I suppose is the short story, and they understand their industry and their product and they're innovative, and they work away at the skill of the workforce. Typically, the successful ones that I've seen, typically have got people who have been there for many years and who are very loyal, and have got the freedom to think. And know and understand that to remain competitive they need a leading product and they've gotta be able to ensure that the defence primes understand their capability and they work away at doing that. That's a pretty good formula and there are a lot of companies in Australia that are like that.

Even if you do all of that, by the way, it's still really tough to break into it in a big way. That usually comes when you get into a global supply chain. Back when I was minister and there were programmes like this now, I was very supportive of a global supply chain programme that basically told the primes, "If you want us to buy your aircraft, we're gonna have to find a way for Australian SMEs with those capabilities and characteristics who are ITARs, [inaudible 00:19:50], and all the rest of it, to get into a global supply chain so they can achieve scale. The most interesting programme in that regard was the joint strike fighter, I think, and continues to be so, of course. Getting Australian suppliers into that was highly challenging, both for governments and for the SMEs that wanted to participate in it, but a number of them have done exceptionally well.

Phil Tarrant:

Victoria is punching above its weight there, as well, in terms of JSF isn't it?

Greg Combet:

Yeah, I think so.

Phil Tarrant:

It's got a lot of contracts there. Did you think ... and we're gonna have to finish up, we're running out of time.

Greg Combet:

Sure.

Phil Tarrant:

No, it's good. It's really good. We'll have to get you back on, because there's a whole bunch of other questions. Compared to when you were minister to what you're doing right now, do you think it's easier to be in the business of defence today than what it was back then for these SMEs or even primes?

Greg Combet:

I wouldn't say so, no. The thing that's more promising now is the scale of the work. The extent of the funding that's been foreshadowed and an improved policy environment for Australian industry. You can understand, if you're there as a capability person in the ADF, what you want is a supplier to deliver to you the capability that the Army, Navy or Air Force, or the security agencies, that they need. And you need to do it at value for money. What the Turnbull government has done is to broaden that a bit further. I would have liked to achieve a bit more when Labour was in power and I was part of a Labour government.

At least in their pronouncements Malcolm Turnbull and Christopher Pine have stated clearly their ambition that part of the objective, too, is an Australian economic objective to grow the economy and grow jobs and support businesses in the defence industry. And that's a good objective to have, but converting that from press releases and statements by political leadership into procurement policies is the next challenge. If that's done, then it'll be a much better environment for Australian defence manufacturers, without a doubt.

Phil Tarrant:

That's a perfect spot to finish, Greg. I do appreciate your coming on and I'm sure we'll be the first person you call once we know what's going on with Land 400 and Victoria, so I'll await that phone call when it happens. But please keep connected, keep engaged. Let us know how Victoria's tracking in defence.

Greg Combet:

All right. Thanks for having me on, Phil.

Phil Tarrant:

That's good. Remember, everyone, to check out defenceconnect.com.au. You can follow us on all the social channels, Facebook, Twitter, LinkedIn. And please keep those comments coming on iTunes, as well, we do appreciate the feedback. Anything you'd like to know from me or from Greg or any of our podcasts in general, you can contact the team editor at defenceconnect.com.au. We'll be back again next week. Thanks for tuning in. We'll see you then. Bye-bye.