We need clarity and support in Aussie defence industry

While the urgency of the “drums of war” rhetoric and the deteriorating geostrategic situation increases, our major shipbuilding projects are confirming further and further delays, there is still no clarity on the full nature of the Collins Life-of-Type Extension (LoTE) project, no decision on the location of the LOTE and Collins full-cycle docking (FCD) work from 2026 onwards, no positive noises about the Future Submarine contractual arrangements with Naval moving into the next phase due in September, and there is now a pending unspecified restructure of naval shipbuilding management within the Department of Defence.

On their own, any of the above would cause concern to industry involved or wanting to be involved in any of these projects, and now we’ve learnt that the Australian defence industry czar in Defence, Martin Halloran, has left too.

It is fair now to say that not only is industry at risk but after six defence ministers in eight years, the mismanagement of defence procurement is putting the nation at risk, too.

Getting all this back on track should be a task that Defence engages local Australian industry on as an integral partner. Indeed, local defence industry should be seen less as a critical enabler of defence capability (though it is) and more as its own domain of capability to work with all the other domains and necessary to ensure the breadth and depth of defence operational success.

It is, therefore, vital that the prime contractors engaged by Defence on these significant projects properly engage Australian small and medium enterprises into their defence supply chains locally (and preferably abroad too).

This requires the Australian government to have enforceable Australian industry capability (AIC) requirements with the primes, not just requiring “best endeavours”, and that those requirements are both audited and enforced.

Unfortunately, this Abbott-Turnbull-Morrison government has not even lived up to its own rhetoric of growing Australia’s sovereign defence industry capabilities, despite the clear evidence of how vulnerable we are to supply chain and skill supply shocks, as demonstrated by the present COVID-19 pandemic. Such vulnerabilities would be even worse in the event of actual armed conflict. We can’t say we haven’t been warned.

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To make all this work, our Australian defence industry needs the support of government.

We have so many fantastic SMEs here in Australian doing exceptionally innovative work – as well as some very standard, but very necessary, work too. Certainly, the Morrison government loves to point to the odd one getting a sub-contract or a grant.

But, we need leadership from the top to ensure that Australian industry gets more than piecemeal opportunities and is able to scale up and be supported in a real way.

Currently we have situations where prime contractors on major projects get away with approaches to market testing and procurement that disadvantage local suppliers to the benefit of those primes’ existing foreign based supply chains.

I hear stories from very capable Australian businesses tendering for work with primes with little hope of success. Be it the only apparent purpose of the tender is to set a local price benchmark for foreign suppliers to then beat, or tenders to do parts of work that are uneconomic and with no guarantee of the ongoing supply through the build phase. Time and time again we find this work ends up overseas, or with tender specifications all to foreign design standards and spec, with no willingness to work with local industry to determine the suitable locally supplied materials to enable local suppliers to participate.

To be fair, some prime contractors are prepared to work and engage with local industry to ensure they can participate as suppliers, and do the work to find local businesses that are doing near enough work and encourage them to expand into being a supplier to these projects as well. Unfortunately, too many primes scan the horizon and can’t see a perfect exact fit for what they say they need. Subsequently, they tell government that Australian defence industry lacks the capability for parts of the project.

This government and their Defence Department are letting the primes get away with it when they should be holding the primes to account, when they should be managing these billion-dollar contracts (and smaller ones) properly. Don’t forget, it is Australian businesses, Australian workers, Australian sovereign capability, the ADF and all Australian taxpayers that ultimately lose out because of this.

This is why the Australian Labor Party has committed to implementing a new approach requiring clear, transparent, audited and enforceable contract requirements on primes and through the supply chain to ensure that Australia gets the biggest bang for its $270 billion of defence procurement spending over the next decade.

Making this work will also include reviewing and comparing the progress reports from primes on their use of Australian industry capability to ensure targets are not only being met, but to identify where some claim there are gaps whilst others are successfully finding or growing such local capabilities. This will also enable government to identify true gaps to work with local industry to ensure these are plugged, by supporting new businesses, or the expansion of existing businesses to fill capability gaps.

This will be supported by Labor’s announced National Reconstruction Fund, which will provide up to $15 billion of capital to invest in job creating projects through loans, equity and guarantees to support and grow Australia’s sovereign capability as well as research and development for the future.

Labor’s plans are not just about ensuring that a proportion of money spent is classified as “Australian”, we know it means more than just spending money here, rather it’s about measuring and growing our Australian defence industry capabilities. Ultimately, this is what improves our national sovereign capability and our national security with it. That means it needs to be Australian owned, controlled and developed, as well as the work done here.

Australia has the ability, capability and know-how but it is up to the government to ensure that it is developed in our national interest. This initiative needs to be taken from the top down, but so far, the Morrison government is failing to deliver.

Matt Keogh is Labor’s shadow minister for defence industry