iscover
Australia owns the munitions factories at Benalla and Mulwala.
By June 2026, their operating contract with Thales was valued at $1.9 billion. Yet a July audit found that industrial preparedness was an intended outcome, not a specific contractual deliverable.
Worse, an error in the performance formula inadvertently incentivised increased production of goods for customers other than the Australian Defence Force.
Neither party detected it during negotiations, implementation or the first three years of performance reviews.
The same Australian National Audit Office report recorded $41.6 million spent on 155mm artillery projectiles originally due in December 2022. The rounds remained undelivered as qualification and production problems continued into 2026. The contract’s performance framework contained no delivery KPI for developmental
munitions. Established products performed better, and Defence had begun corrective action. The audit did not find that foreign customers had displaced ADF orders. It documented a failure of contracting and oversight: public spending had not secured the industrial results Defence intended.
On 14 October, Canberra introduced legislation reserving Australian gas for domestic users. The proposed obligation, equivalent to 20 per cent of LNG exports and calibrated to forecast demand, explicitly distinguishes export capacity from domestic supply. Whatever the merits of the scheme, Canberra has recognised that national production does not itself guarantee national access. Its defence contracts deserve the same precision.
Australia is investing heavily in domestic weapons manufacturing. The first Australian-made Guided Multiple Launch Rocket System missiles were successfully test-fired in April after production at Port Wakefield. A higher-rate facility is planned to reach 4,000 missiles annually by 2029. Near Newcastle, a Kongsberg factory supported by up to A$850 million in Australian investment is expected to manufacture Naval Strike Missiles and Joint Strike Missiles for the ADF and partner nations from 2027.
These are substantial advances in Australian manufacturing. They establish production capacity, not automatically an enforceable Australian claim on its future output. The delivery entitlements, priority provisions and timelines matter as much as the machinery.
Defence Industry Minister Pat Conroy has defined sovereign industrial capability through intellectual property, skilled personnel, facilities and decision-making power.
Each is essential. None, independently, establishes when the Commonwealth can demand a finished weapon. That right belongs in the contract.
Export orders help finance machinery, sustain skilled workers and keep production lines commercially viable. They also occupy manufacturing slots, absorb scarce components and commit delivery dates. When Australian and allied demand rises simultaneously, factory location cannot settle competing contractual claims. A government may have funded the facility without purchasing priority over its output.
The US$3 billion Defence Industry Growth Facility, announced in August, brings this distinction into sharper focus. By extending public finance beyond exports to projects supporting sovereign capability, Canberra can use loans, guarantees, bonds and equity to expand its defence industrial base. Those instruments can finance production. They do not, without separate contractual terms, secure inventory or delivery rights.
Government support for export growth is a legitimate economic objective.
Government support presented as a contribution to military readiness demands a further test: what has Defence actually acquired the right to receive?
Canberra should introduce an Australian Availability Schedule for strategically critical manufacturing projects whose public support is justified by national readiness. It would identify weapons already purchased, stockpiles held under enforceable terms and future production secured through paid options. Firm delivery windows would be distinguished from capacity requiring additional investment, imported components, regulatory approval or specialist labor.
The schedule must extend beyond final assembly. Reserved production is of limited military value if propellant, warheads, guidance components, testing facilities or software permissions remain unavailable. Defence should establish what each critical facility can deliver within 30, 90 and 180 days under simultaneous Australian and allied demand, accounting for existing contractual commitments. Cabinet would receive the resulting readiness assessment, with aggregate measures available to Parliament without exposing sensitive arrangements.
Priority must be purchased. Australia can fund inventories, long-lead materials, additional shifts and options over future production, compensating suppliers for the capacity they reserve. These arrangements can preserve existing contracts and the export demand sustaining domestic manufacturing. A blanket percentage copied from the gas market would disregard the different production cycles, technical constraints and qualification requirements of modern weapons. Contractual priority must be product-specific, funded and agreed before a crisis.
That distinction also belongs in the measurement of industrial success. A factory’s output, export revenue and workforce demonstrate economic capacity. Defence availability must be measured against contracted quantities, delivery deadlines, usable stocks and replenishment times. A production target cannot substitute for a supply obligation.
The Benalla and Mulwala audit exposed what happens when contractual incentives diverge from national objectives. It also demonstrated the limits of ownership.
Australia possessed the factories, financed their operation and sought industrial preparedness, yet its performance framework failed to secure or measure essential elements of that objective. The government wrote the contract, approved its incentives and paid its invoices.
A contractor can fulfil every obligation and still expose a failure by the government that drafted them. No contractor has to break a promise for Canberra to discover it bought the wrong one.
Australia will have secured its wartime munitions when the Commonwealth can enforce delivery of the weapons it finances, not merely point to the factories that make them.
***Shay Gal is Founder and Principal of Line of State, a strategic advisory practice working with governments, institutions and senior decision-makers on strategic risk, sovereign capability, access and national security in contested environments. He previously served as Vice President of External Relations at Israel Aerospace Industries.***
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