Tag Archive for: Department of Defence

Nuclear submarines increase Australia’s need for speed

The world’s gotten more dangerous—and quickly. And while nuclear submarines from the new AUKUS partnership will give Australia a powerful long-term deterrent, this won’t be a fast program that delivers inside 15 years.

It’s becoming even more essential that Defence matches the speed of change in the strategic environment in areas that can deliver well before then. That will require very different approaches to defence development and acquisition than we see now, with current and historical lessons.

Rapid change is happening, as in the collapse in Afghanistan and the emergence of the AUKUS partnership that ended a 40-year, $90 billion contract with the French.

The growing defence budget provides the opportunity to strengthen our military’s ability to defend Australia, but the defence organisation’s timelines are agonisingly slow.

Even before the subs announcement, most of the investment was going into massive, multibillion-dollar manned systems like ships, submarines and armoured vehicles that are only available in small numbers and that won’t arrive during this dangerous decade.

Why is this? A defining attribute of the development of the defence organisation since the era of Arthur Tange in the 1970s has been to weld the military services and the public servants in the Defence Department into a single, integrated organisation. This has been sensible for coordinated functioning and for stripping out duplicated activities, but it’s also led to an increasingly complicated, dense bureaucratic organisation which is really a federation, not a unified whole.

Along with the creation of a dense bureaucratic system, the business processes around spending the billions Defence gets for weapons, platforms and surveillance and intelligence systems have been elaborated and detailed over time. A primary objective has been to reduce the risk of project trouble—delays and cost blowouts. However, these structures almost inevitably deliver the opposite result—additional costs, extended delivery timelines and less capability.

The latest version of the Capability life cycle manual and the dense processes in Defence’s Capability Acquisition and Sustainment Group project management all make getting anything that looks like fast moving technology into the hands of our military, in any numbers, plain unlikely.

Defence has designed itself to move slowly and carefully—which was fine when Australia had the luxury of time, with major conflict a distant prospect.

Defence’s structures and business processes are deeply embedded not just in the organisation, but in the mindsets and assumptions of pretty much everyone who works there. And the other powerful departments of state—Finance, Treasury and the prime minister’s department—that are part of ‘whole of government’ decision-making, like these constraints on how Defence spends money.

Any expectation that internal adjustments to these hardwired design features will fix this are misplaced. Defence won’t solve the problem of timeliness internally—a blue whale cannot become a roadrunner. Recent evidence out of Defence supports this conclusion: to speed itself up it released an 88-page transformation strategy, filled with commitments to implement things 2016’s First principles review had already said should happen.

In some military programs a dense, complex ‘ecosystem’ and careful, extended processes make absolute sense. Nuclear submarines are an iconic example.

It’s absolutely right to take the time, care and methodical approach of our UK and US partners to design, manufacture, crew and support these weapon systems. They will demand this.

Unfortunately, the AUKUS announcement’s overwhelming focus on nuclear submarines can reinforce this same organisational behaviour in the senior leadership of Defence and across its workforce in areas well outside the subs program.

Slow and complex is Defence’s ‘happy place’. But this could suck the oxygen out of other areas where an entirely different, rapid and risk-accepting mindset is needed.

What can be done? Focused change is likely to succeed more than trying to reinvent the Defence organisation.

And an irony provides a bigger opportunity. Military officers participate in all the behaviours and processes that make Defence frustrating and slow. When they’re in their organisational roles, they are among the most adept at using arcane processes to avoid change and instead invest in things they know well—mostly more elaborate, expensive versions of what they already have. But they’re the ‘go-to’ people when our political leaders must act in crises and need focus and results fast. There they have strong records of success.

Covid has given us two examples: Lieutenant General John Frewen, the coordinator general of the National Covid Vaccination Taskforce  and former air vice marshal Margaret Staib, the national freight controller. And there’s the Operation Sovereign Borders precedent from 2013, when Tony Abbott appointed then–major general Angus Campbell to stop the boats.

There are multiple examples of military personnel leading disaster-recovery taskforces, like Major General Mick Slater, Queensland’s flood recovery coordinator in 2011, and General Peter Cosgrove’s work on reconstruction after Cyclone Larry in 2006.

The lesson is not just that organised, methodical military people can do things outside of Defence. The key is that the appointments were made in ways that enabled success.

Frewen’s letter of appointment is just two pages long. It empowers him to get cooperation from any Commonwealth official, regardless of their line responsibilities, and to work directly for the prime minister and health minister. He can engage with state and territory governments and with companies as he judges necessary. The focus of the work is crystal clear: ‘to ensure public confidence in the vaccine rollout and ensure as many Australians are vaccinated as early as possible within [Therapeutic Goods Administration] guidelines and available vaccine supply’.

Campbell’s direction was even simpler. It was the Abbott 2013 election slogan: ‘Stop the boats’, and he was similarly empowered to work across organisational boundaries.

This approach can increase Australia’s military power quickly. A ‘sovereign missile production coordinator’ could be appointed outside the reporting line of Defence or any other agency and empowered to use the $1 billion allocated to create, urgently, this domestic production capability. That could deliver an Australian ability to build at least some of the $100 billion in missiles Defence plans to buy over coming years, starting well before 2030.

Relying on Defence’s complex internal evaluation, procurement and contracting processes and examining myriad industry bids and options in response to requests for information and then perhaps requests for tender will probably not deliver this outcome.

An Australian version of the US’s highly successful Defense Advanced Research Projects Agency, better known as DARPA, could be created here with a similar empowered and resourced mandate to deliver powerful new technologies well before 2030. Those appointed to lead it could come from the military, the public service or the corporate world.

Despite AUKUS, not all fast-tracked capabilities will come out of the US and UK partnerships. Israel and Norway are likely to move faster to help us establish domestic missile production. Australian firms like NIOA, EOS, Droneshield, Defendex and Gilmour Space can deliver fast-tracked systems too. If we take sovereignty, self-reliance and timeliness seriously, this matters.

So, the government must push defence development and procurement to operate at two speeds—the ‘slow food’ approach for the subs and the ‘fast food’ approach to deliver meaningful capabilities to the ADF over the next two, three, five and 10 years.

Achieving this almost certainly means Defence must let go of control to others—like an Aussie DARPA or an Australian missile tsar—for fast-moving programs.

Before people say this would be crazy, unprecedented risk-taking, focus and empowerment outside existing government structures is strikingly similar to the way key Australians like Essington Lewis and Lawrence Wackett transformed Australia’s economy in the late 1930s and 1940s. It’s also how the seminal 1987 defence white paper was created.

There are lessons here for every department and agency, and for anyone wrestling with inter-departmental or cross-cutting issues.

Even as we begin the incredibly important long-term program of producing the powerful deterrent capability of nuclear submarines, we also need to get up to the speed of change in our environment.

For those who think working outside the standard machinery of government is only justifiable in a time of crisis, the government has clearly stated that we are in the most dangerous era since World War II, and we cannot rely on warning time to prepare for conflict. The crisis is here.

Reforming Defence is about the mission and urgency—not lengthy corporate documents

Changing Defence only matters if you care about Australia’s security and understand what’s happening in the world.

Organisational reform and cultural change in the Defence Department and the Australian Defence Force have a long, painful history. The most recent iterations are the ‘Pathway to Change’ reform program, the first principles review and the new transformation strategy. There’s the Brereton inquiry report and its broader consequences and resulting actions—both internally for Defence and the ADF, and at a whole-of-government level through the prime minister’s establishment of the Office of the Special Investigator to address the potential criminal matters the inquiry raised.

Of the many ways to reform Defence’s culture, structure and processes, it’s crucial to implement the 2020 defence strategic update to connect arcane internal issues with what’s happening in the wider world.

Implementing the update means fundamentally changing the mindsets, culture and behaviour of Defence, the ADF and defence industry from the way they’ve been for the past 20 years. Defence people talk of those two decades as a demanding and intense period of continual deployment with high-tempo operations in East Timor, Afghanistan, Iraq and Syria and peacekeeping commitments.

That’s true at one level but, at a more fundamental level, it’s not.

The past 20 years were luxurious compared with the strategic environment now, and over the next 20 years, with the challenges the Chinese state provides to Australia, the United States and all of our partners and allies in the Indo-Pacific and to open societies globally. Then there’s climate change and technological change.

The deployments into East Timor, Afghanistan, Iraq and Syria were discretionary, tailored uses of the ADF to best achieve the mission with the least risk of casualties. Supporting these deployments was at times difficult, but nowhere near the scale, volume and tempo that a major conflict in our region would demand of our military, the broader defence organisation and Australian industry.

But cultures, mindsets and ways of doing things are hard to change even when the operating environment demands such changes. That’s true about the big, clunky defence organisation, the three services and any of the large defence industry actors that are essential partners for Defence.

It’s obviously true not just in defence organisations. Look at the reluctance of any large organisation confronted with obvious external drivers of change, like big power companies in the energy sector given the ‘insurgency’ of renewable energy. Or the auto industry, with the rise of electric vehicles, where CEOs are now making decisions like ending development of new combustion engines while other companies fight the tide to preserve their positions.

Australia’s entire national defence enterprise needs to accept that time is not our friend and to understand that our security and that of the broader region demand that we work together as part of a much more powerful, obvious, credible military deterrence of conflict in our region. None of this can be done by even the most activist Australia alone. It requires close partnerships centred on our US ally and our other allies regionally and globally.

Industry leaders have a much bigger role to play in increasing the pace of change for Defence. Driven by the national interest and by what they see in their corporate environments, they have an obligation to do much more than respond to the customers’ ‘requirements’ through tendering exercises, and instead help Defence match the pace of change required to avoid redundancy and obsolescence. That means shaping requirements and offering solutions for ‘requirements’ that have not been generated through internal defence organisational processes.

Every activity and process across Defence, within the ADF and in defence industry needs to be conducted with the urgency the strategic update sets out so clearly with its warning that we’ll no longer have 10 years to prepare for a major conflict. That’s unlike any discretionary deployment those in government or industry have experienced in their working careers.

The ability to provide the ADF with the support it will need to operate in a high-intensity conflict against an aggressor that’s technologically at least our peer operating at speed and scale (let’s call this the PLA) is the defining test of the work each of us does over this decade. That’s a confronting personal realisation, not just something to read in an organisational change strategy.

This is not about simply husbanding the major programs like frigates and submarines until they deliver in the 2030s and beyond. A more urgent purpose is about delivering sustainable, replaceable, scalable capabilities much faster. And it’s about being able to do this in a world of fracturing global supply chains in which glaring vulnerabilities exist—such as having potential adversaries baked into multiple supply chains.

None of this will be achieved by turning the handle on existing systems, approaches and mindsets.

In fact, some of the lessons learned—or which must still be learned—from deployments like Afghanistan are absolutely relevant but must be generalised across Defence and industry.

One is the tight and integrated teamwork that the ADF, Defence Science and Technology Group and defence industry—in this case, Thales—demonstrated working on the urgent common purpose of making the Bushmaster protected mobility vehicle as survivable as possible in the dangerous and rapidly changing environment of improvised explosive devices and shaped charges used by the Taliban.

That sense of common mission and urgency needs to be contagious across this broader national defence enterprise. It needs to brought to initiatives like the government’s hugely important decision to establish a sovereign guided-missile enterprise. And it needs to be brought to the acceleration into service of new undersea capabilities to work with our submarines.

Without this urgent sense of mission, the processes of Defence and big US primes and intergovernmental constraints are likely to combine to ensure that it’s 10 years before the first guided weapon rolls off an Australian production line. That’s unacceptable given the government’s clear direction, backed with the money to do it.

With this urgent sense of common mission, I can imagine Australia investing in greater naval facilities in Darwin and Stirling to host the navy’s growing fleet and rotating US, Japanese, Indian and other partner naval forces operating through Southeast Asia and into the Indian Ocean.

Australia has a chance to shape the US administration’s decisions on its global posture review to meet American interests and our own. Again, the update seems to give the guidance and funding to do this, even if that funding may need to be shifted internally within Defence.

One connection of reform to this bigger strategic picture relates most closely to the special forces.

Iraq and Afghanistan were intense experiences for the special forces, but they also were absolutely unlike the demands that our current and future strategic environment will make of them. The huge shift in mindset and culture they need to make is to recognise this and to understand that their role in this strategic environment is not about sustained deployed operations. Instead, it’s a return to their core reason for being—conducting covert surveillance and operations where firing weapons and being detected by adversaries are failures.

Our special forces have been a key part of the ADF capability for 20 years, but they’ll be even more important in the world that’s emerging. They need to be able to operate in an environment in which our technological or information superiority, or superior volume and scale, are no longer assumed, and in which it’s much harder to be covert because of the digital signatures and footprints that humans and technologies create.

This is a similar technological challenge to the one faced by the broader ADF, but the special forces’ covert, low-signature role makes it much more intense. They need to return to thinking of themselves as a low-volume, high-value force used strategically and sparingly, not in a multi-year sustained way.

That’s why generalising the Bushmaster experience is such an important lesson.

Enormous levels of trust will be required in every special forces member, from top commanders to every small team and individual. Learning the hard lessons of Afghanistan is vital.

As the prime minister said in November: ‘Our serving men and women are deserving of the respect and admiration in which they are held by the Australian people and it’s a respect that requires the highest standard of conduct.

‘The release of the [Brereton] report will be difficult and hard news for Australians, but it is our Australian way to deal with these issues with a deep respect for justice and the rule of law, but also to illuminate the truth.’

And as now Defence Minister Peter Dutton said at the time: ‘As with any allegations of serious and possibly criminal misconduct, these matters need to be assessed, investigated and, where allegations are substantiated, prosecuted in court.’

Both are right, and all the serving and former members of the special forces who provided evidence of unlawful killings must also know that their accounts will be taken seriously, and that Defence, the government and the public see that what they did to bring these acts to light is in the best traditions of the disciplined, trusted force that is the ADF.

So, the message about Defence reform, structures and processes is that the changes required are meaningful across the national defence enterprise—the department, the ADF, the broader defence organisation and Australian industry—and they all centre on the sense of urgency and mission set out so clearly in the government’s strategic update.

The difficult change in mindset and organisational structures is to take the words and directions seriously and act on them.

Australia’s defence debate should focus on strategy and force structure, not tactics and tanks

Keen readers of Australian defence discourse won’t have missed the passions exposed by recent news that the army intends to buy new tanks and armoured engineering vehicles—some critically canvased across these pages, some barracked for on defence industry sites and social media, and unmissably, the Statler and Waldorf routine which entertained in The Australian.

Inevitably, this debate has succumbed to an obstacle which afflicts most Australian military discussions: we’re mired in talking tactics when we need to be thinking strategy.

To debate the specific merits of the weapon system on the Abrams M1A2 SEPv3 main battle tank or deeply argue the general utility of the tank—while fascinating—is to really miss the point.

What’s in real contention is the future force structure and resourcing of the Australian Defence Force over the long term against the government’s new direction in the 2020 defence strategic update. The government has clearly told the ADF that ‘sharper prioritisation is required’ and that its ‘new policy will require force structure and capability adjustments focussing on responding to grey-zone challenges, the possibility of high-intensity conflict and domestic crises’.

But what many in uniform may not yet realise is that the government has unambiguously telegraphed extensive changes to the ADF’s force design. That means hard choices need to be made—such as complete divestment, partial scaling down or transference to the reserve of legacy capabilities—which didn’t manifest in the 2020 force structure plan. Among the three services and the new kid (the Joint Capabilities Group), there will be some winners and potentially many losers.

Why? First off, it’s about money. The ADF can’t be blind to the nation’s fiscal position, which will linger for decades beyond this pandemic. Debt is forecast to peak by mid-2025 at $980.6 billion, or 40.9% of GDP. Australia has modest strategic weight and finite available resources. The government won’t be able to afford romantic investment in legacy ADF capabilities whose value is limited for conditions and adversary trends faced in our region.

Money needs to be found for long-range strike and area-denial effects and increased resilience and self-reliance preparedness.

While specific decisions on these matters are yet to be taken or publicly known, it’s clear that big outlays will be required to achieve the ‘credible deterrence’ envisaged. Even if future governments increase the defence budget in years ahead, it’s an obvious deduction that considerable money will still need to be reprofiled. The Attack-class submarines, the Hunter-class frigates and the F-35 jets have already locked in eye-watering capital and sustainment spends beyond the life span of the 2020 force structure plan. For example, the plan forecasts $9.5–14.2 billion for the army’s heavy armour capabilities out to 2040—and that excludes $18.1–27.1 billion slated for a 40-ton infantry fighting vehicle fleet in Land 400 Phase 3.

Second, the ADF’s force structure lacks coherence for our strategic geography and the behavioural trends exhibited by our potential adversaries. That’s because, as a nation, we haven’t had to make any hard security choices since World War II. It’s true the ADF has several highly sophisticated capabilities that the nation can be proud of—mostly thanks to our alliance with the United States.

But the reality is that we’ve ended up with a boutique force structure where there’s a sprinkle of everything so every service gets to feel a little special. That ensures we don’t have sufficient mass in anything and are underinvested in combat enablers, logistics and materiel holdings. Service biases and traditions are perpetuated without rigorous contestability.

A compounding factor has been our sustained operations in Afghanistan and Iraq against non-existential threats, which have warped our mindset over the past 20 years. We now too often mimic our US military friends rather than develop capabilities, operational concepts and partner relationships specific for our own geography and sovereign purpose.

And, finally, it’s about time. The government has scrapped the assumption that Australia will have 10 years’ strategic warning time of a major conventional attack, starkly noting:

Growing regional military capabilities, and the speed at which they can be deployed, mean Australia can no longer rely on a timely warning ahead of conflict occurring. Reduced warning times mean defence plans can no longer assume Australia will have time to gradually adjust military capability and preparedness in response to emerging challenges.

It’s a clear deduction that the government wants ADF force design to be more agile against real-world imperatives. Thus, the defence enterprise can no longer luxuriate in complacent bureaucratic processes that bear no relevance to the strategic conditions we face. We need to treat some major critical vulnerabilities in the short term (within five years), and quickly, rather than wait for perfection in the long term (10 to 20 years).

That means fielding proven military-off-the-shelf systems now in order to offer credible options to decision-makers and guard against surprise. If we’re reluctant to buy outright, then we should consider expanded leases or trial some options as a hedge.

The clarity in the 2020 defence strategic update allows for simple and clear test criteria to be applied against future force structure options. Military planners would understand these to be ‘essential tasks’, in the lexicon of a staff officer. Service and joint planners ought to be able, in plain language, to cogently argue how their desired capabilities address the following questions:

1. Is the capability fit for purpose in our immediate region—the northeastern Indian Ocean, through maritime and mainland Southeast Asia to Papua New Guinea and the Southwest Pacific?

and

2. Does it enhance the ADF’s lethality for the sorts of high-intensity operations that are the most likely and highest priority for Australia’s security or enhance the ADF’s self-reliance for delivering deterrent effects?

or

3. Does it expand the ADF’s ways and means for grey-zone activities?

Taking these criteria into consideration, then, what about the army’s $2.5 billion acquisition of new tanks and armoured engineering vehicles?

Drawing upon extensive US Army experience with earlier variants, the M1A2 SEPv3 will undoubtedly offer the Australian Army a mature and highly potent weapon system that’s well suited for continental land mass manoeuvre. But in Australia’s surrounding littoral and archipelagic environment, how a 73-ton vehicle optimised for close combat will pose dilemmas, yield asymmetries and offset other ADF limitations at range is much less apparent.

Given how many medium- and long-range anti-ship ballistic and cruise missiles are being fielded in our region, going over the beach head with heavy armour doesn’t seem prudent anymore. More confounding is why heavy armour is being prioritised in the short term over addressing major gaps in medium- and long-range area air defence, long-range maritime and land strike, and offensive electronic warfare.

The army’s ‘accelerated warfare’ concept identifies warfare at ranges over hundreds and thousands of kilometres as a new normal. The current ADF, particularly the army, is highly vulnerable and has limited options for force application at range. The prioritisation solution probably sounds logical inside the layers of Canberra’s committees, but not to a strategist or a forward commander.

The government’s orders are clear. Irrespective of opinion and regardless of rank, participants in Australian defence discourse must first consider strategy and not retreat to the comfort of tactics. Should the ADF take the easy road and perpetuate a legacy force structure, it will fail to change at the pace the government demands and, ultimately, risk failing the nation it is entrusted to defend.

ASPI’s decades: Off-the-shelf overseas or on-shore ourselves

ASPI celebrates its 20th anniversary this year. This series looks at ASPI’s work since its creation in August 2001.

Why does Australia build its own military kit? Why not just buy it off the shelf?

If Australia buys its military aircraft overseas but builds its own ships and submarines, what’s the return for jobs and the economy versus the capability created for Defence?

The F-35 joint strike fighter and the Attack-class submarines are giant case studies that show the complications that entangle simple questions. The subs are being built in Australia with an overseas partner. The F-35 is an American plane but Australia is part of the production chain.

Such giant purchases illustrate the lack of easy answers in the jungly, jangly juggle of cost, risk and capability. ASPI has produced a bookshelf or two of reports examining these problems and offering solutions.

Considering that balance of build here or buy over there, in 2009 Andrew Davies and Peter Layton looked at the strategic implications of pointing to the shelf and saying, ‘We’ll have six of them and four of those’.

The overseas answer should offer firm price, scheduled delivery and interoperability with allies, Davies and Layton said:

The clear trend in post-WWII Australia has been towards the outsourcing of our military research and development, retaining in-country only those elements of defence industry required to support equipment that is, for the most part, designed elsewhere. This is consistent with an ongoing evolution of the Australian economy as a participant in an increasingly globalised free market. These choices can have strategic consequences and have the potential to diminish Australia’s self-reliance.

The argument against off-the-shelf purchases is that Australia buys overseas kit that isn’t designed for Australian purposes. Rather, the case runs, we should do the research and the work here, buy in knowledge as needed, and use it to buy here. We should do defence as industry policy: build our own industry and build our economy, protect sovereignty and protect jobs. The capability must have Australian content. The bumper stickers would read: ‘Buy Oz, build Oz’ or ‘Think for yourself, make it yourself’.

‘Buy Oz’ has shown more domestic political heft than the off-the-shelf capability mantra of ‘Buy the absolute best for Defence and get it quick’.

The Defence version of ‘Build Oz’ became ‘sovereign industrial capability’, a concept hammered at with more than 30 references in the 2020 defence strategic update and force structure plan.

Key ASPI studies in the think-for-yourself dimension were Defence science and innovation: an affordable strategic advantage in 2015 and Defence and security R&D: a sovereign strategic advantage in 2019.

So, what economic benefit will Australia get from spending hundreds of billions of dollars on building its own kit wearing that ‘Buy Oz, build Oz’ badge?

In answering, Rob Bourke’s 2019 Defence projects and the economy was sceptical about Defence as a major source of ‘jobs and growth’, remarking on how little supporting evidence there is for the claimed economic benefits. At best, Bourke wrote, the projects appear to have a small positive impact on economic activity:

Paying high price premiums to have Defence capital equipment assembled in Australia has in the past been associated mainly with military-strategic imperatives. In future, under the banner of defence industrial sovereignty, it seems that the expectation of offsetting economic gains will play a more prominent role than before—giving sovereignty a broader remit than the term implies. However, in the absence of those gains, the cost of sovereignty has its limits. It can be argued that sovereign status shouldn’t entitle an industrial capability to unfettered levels of government assistance unencumbered by critical analysis.

Australia’s choice to build its own warships was subject to a strategic and economic analysis by Davies, Henry Ergas and Mark Thomson in 2012. High rates of assistance to domestic shipbuilding, they wrote, distorted the allocation of economic resources but also the choices Defence made about capability:

Given that the excess costs, calculated over the entirety of the future fleet program, could amount to many billions of dollars, the loss to Australian society from protecting domestic military shipbuilding could be extremely high. There is also the loss, more difficult to quantify but no less real, should the high cost of building ships in this country force us to settle for a smaller fleet or impose unwarranted opportunity costs on other parts of the defence portfolio, thus reducing Australia’s net defence capability. Unless credible offsetting benefits can be identified, and they have not been to date, the case for continuing the current preference for domestic production is very weak indeed.

In tracking the roiling, rolling story of kit creation, ASPI sought the lessons learned from the hard school of defence capability development.

When Davies looked back 13 years on from the release of the 2000 defence white paper, some of the major capabilities announced in it had still to be realised.

Future leaders could take lessons from an unhappy process. Chronic optimism permeated project timelines: the 15 delivery times given ranged from four to 15 years, with an average of seven years. The actual average was almost 13 years—schedule overruns averaged more than five years.

Projects taking more than a decade to deliver were overtaken by events, Davies wrote. The world changed and priorities changed. More than a quarter of the capability enhancements announced in the 2000 white paper were altered because of shifts in government thinking or in the strategic environment.

In the age of Covid-19, US President Donald Trump’s thought bubble about bringing all elements of production of the F-35 back to America was a brutal illustration that one person’s local manufacture is another’s loss of export markets and jobs.

Marcus Hellyer commented that Trump’s idea of stripping the seven remaining non-US partners in the JSF consortium (Australia, Canada, Denmark, Italy, the Netherlands, Norway and the United Kingdom) of their workshares likely wouldn’t happen. Finding new suppliers for literally thousands of components would delay the program even further, he wrote, and ‘it would be an act of perfidy that would be hard for America’s allies to ignore’.

The argument for sovereign industrial capability got a pandemic-sized boost. The ‘Think for yourself, make it yourself’ plan wasn’t just about building the economy and having full control over capability; it also protected Australia from the fragilities in international supply chains exposed by Covid.

In reviewing the 2021 defence budget and what had happened to the creation of defence kit during the pandemic, Hellyer said Australian manufacturers showed they could deliver:

It’s a very encouraging sign that industry can meet the challenge of ‘eating the elephant’ presented by the 2020 [defence strategic update]’s growing acquisition program. Australian defence industry did particularly well, according to Defence’s data. Defence’s local military equipment spend grew by a remarkable 35% to around $3.5 billion. Australian industry isn’t just growing in absolute terms: there are also signs that it’s growing in relative terms compared to the share of spending going overseas. If that continues, it’s evidence at the macro level that the government’s defence industry policy is delivering.

Why is it so hard for Australia’s innovators to win acceptance by Defence?

Finding a path out of the economic ashes of the Covid-19 pandemic while addressing growing tensions in our region has forced Australia to reassess its defence objectives and shift its national goal of ‘sovereign capability’ from a catch phrase to a high priority.

There are many innovative thinkers, entrepreneurs, manufacturers and service providers in Australia that are willing to roll up their sleeves and answer the call. But the journey they face in gaining the attention of the defence sector and winning acceptance for their ideas and skills can be long and arduous.

The team at Life h2o Australia, like many entrepreneurs and innovators, has spent countless hours, many sleepless nights and significant capital investment on research and development to bring innovative concepts and new technology to the attention of decision-makers.

Our team has developed patented prototypes that provide portable, efficient and sustainable water in a wide range of applications, and what might be life-and-death situations.

The company’s objectives are to offer essential resources, operational support and sovereign capability to organisations such as the Australian Defence Force, allied forces, the Australian Border Force and emergency services and to provide assistance for humanitarian aid efforts and natural disaster responses in Australia and the Indo-Pacific region.

Our developing suite of military-grade equipment ranges from man-portable trunk units, backpack-sized systems that can be carried by a single soldier to much larger units designed to utilise mechanised transport. This type of equipment does away with the need for the vast amounts of bottled water issued to personnel by the world’s defence forces, with all the plastic waste that entails, while reducing the militaries’ logistic footprint and thus their vulnerability.

Despite having the very best of intentions and often excellent products, start-ups and small to medium-sized enterprises (SMEs) such as ours are confronted with a maze of inconsistent processes and no clear pathway, resulting in a lack of engagement with subject-matter experts. And there seems to be lots of box-ticking by people who look straight past the innovation.

Unlike the large defence ‘primes’, these SMEs are easily pin-balled around the huge and intricate beast that is Australia’s defence establishment.

Unless these smaller companies have the financial ability to stay the course and realise their full potential, the result can often be that innovative and potentially viable technologies go from ‘cutting edge’ to the cutting-room floor, or are backed by overseas investment only to be purchased at a later date by our sovereign entities at a premium cost.

The difficulty in navigating this flawed system can discourage businesses from persevering with their ideas. That will, in turn, stifle creative thinking and halt crucial research and development.

Perhaps the worst outcome from our nation’s point of view is that our home-grown products and services will become commercially accepted offshore, along with the revenue and valuable jobs they generate.

With the system screaming out for change, there are encouraging signs that some government stakeholders are attempting to play matchmaker and foster a positive and sustainable relationship between innovative industry and our defence establishment.

In our company’s case, it’s worth acknowledging, as an example of what can be done, the efforts of DefenceNT, part of the Northern Territory government’s Department of Industry, Tourism and Trade, to facilitate this process, with encouraging results and measurable success.

While this is a significant step in the right direction by one public organisation, much more effort and a targeted approach are needed across the board so that SMEs with valuable technologies and the ability to become economy-building enterprises don’t continue to slip through the bureaucratic cracks.

In terms of new technology, Australians have a history of punching above their weight, but with our start-ups and recently established SMEs, it’s very much a case of ‘help us, help you’. The time is now to revamp the system, foster the growth of new home-grown innovative technologies, reduce red tape and support our nation’s entrepreneurs and creative thinkers so that they can continue to work tirelessly towards the common goal of economic growth, peace and prosperity.

ASPI’s decades: Kit, complexity and capability

ASPI celebrates its 20th anniversary this year. This series looks at ASPI’s work since its creation in August 2001.

The military needs kit. Cash builds capability. Such plain propositions to describe such expensive complexity.

What do we get for what we pay? And we’re paying billions.

How capable are we with the capability we buy? Getting the kit and capability wrong means taking chances with what fate might throw at us.

Delay and difficulty and soaring dollars are a tough mix.

ASPI boss Peter Jennings lamented that no story seemed more enjoyable to an Australian audience than to be told our defence equipment purchases were all duds:

It’s beyond understanding why an Australian Defence Department that’s able to make such sensible decisions on equipment is so chronically unable to explain them. It’s not sustainable to treat Australia’s biggest ever defence investments like secret projects never to be discussed or explained.

In the absence of those explanations, we will continue to be subjected to an endless stream of critical commentary about the F-35 and future submarines that ranges from the mildly plausible to unhinged conspiracy theories.

When Andrew Davies stepped down after 12 years as director of ASPI’s defence and strategy program in 2018, he reflected that this period involved seven defence ministers, three defence white papers (though we still haven’t finished delivering the force structure from the 2000 version), two and a bit national shipbuilding plans, two wars and the approval of more than $100 billion in spending on major projects.

He penned a piece with a typically apt Davies headline, ‘A farewell to (writing about) arms’. ‘One of the challenges to a job like this,’ he wrote, ‘is to not slip into a persistently negative mindset regarding defence policy and procurement practices. After all, ASPI’s job is to question the prevailing wisdom, and to be Jiminy Cricket to Defence’s Pinocchio.’

The trick is to be constructive while being critical, to put forward a way ahead when discussing even the poorest outcomes of previous decisions. And, Davies notes, we must remember that, despite all the missteps along the way, the Australian Defence Force now is much more capable than it was in 2006 when he joined ASPI:

There are many things that could (and should) have been done faster, cheaper or better—and some that shouldn’t have been done at all—but the average outcome has been an improvement to the nation’s defence capabilities. Of course, it would be alarming indeed if that weren’t the case, given the size of the defence budget and the number of skilled people involved in the enterprise.

Major ASPI case studies tracked the history of kit, big and small:

  • Rearming the Anzacs: The story of how the navy’s Anzac-class frigates—once regarded as a second-tier warship, ‘fitted for but not with’ key weapons systems—were upgraded to become pound-for-pound ‘probably the best warship of its size in the world’.
  • Air warfare destroyer: the game-changer: ‘The AWD procurement was like none other. It involved the reluctant departure from office of two defence ministers; it fell into almost every organisational pitfall imaginable; it ran wildly over budget and schedule; yet it laid the foundation for a continuous naval shipbuilding industry for the first time in Australian history.’
  • Sticking to our guns: a troubled past produces a superb weapon: The tale of the ADF’s Steyr rifle, in service since 1988, and how it evolved to become a unique weapon developed and manufactured in Australia: ‘Gun debate can clamour like an angry mob, with noise and passion surging at the forward edge while reason and logic shrink to the rear. This may in part explain the polarity of opinion on Australia’s service rifle, the Austeyr.’
  • The Bushmaster: from concept to combat: How the army’s Bushmaster protected mobility vehicle was transformed from an ugly duckling—an ‘armoured Winnebago’—into a vital lifesaver for Australian and Dutch troops on combat operations in Afghanistan, a role it was never designed to play.

In the puzzle of kit and cash, here’s one of those simple questions: how much should the government disclose about its plans for equipping Australia’s military?

Wondering about this, Defence contracted ASPI to offer an answer. The resulting 2009 report found that there were tangible benefits in increasing the level of disclosure, and that the risks were manageable. Despite a discernible decline in capability planning transparency over recent years, Australia was still more open about its capability plans than most other countries.

Report authors Mark Thomson and Leigh Purnell commented that apart from military operations, no area of Defence got more attention than the procurement of capability. Billions of taxpayer dollars were involved and defence industry was a major enterprise, employing tens of thousands of Australians.

As a monopoly customer, the more that Defence told the market about its plans, the more likely that its needs would be met efficiently.

The more the public knew about defence planning, Thomson and Purnell wrote, the more likely was an informed public discussion of those plans, and the more readily Defence could be held to account for delivering them.

Disclosure about kit in all its complexity is a key way to tackle the duds-for-dollars dirge about defence.

Will human–machine teaming save Defence’s investment plan?

In my previous article, I noted that because of the disruptive innovation occurring in Australia’s electricity sector, traditional generators are realising that their core assets have become stranded—they’re losing money and can’t be sold. I posed the question of whether the Department of Defence would be faced with the problem of stranded assets as a range of disruptive innovations become reality. These disruptions include the increasingly lethal threats that crewed platforms face, the transition away from liquid fuels and the growth of robotic and autonomous systems.

One way to avoid having stranded assets is to not acquire them in the first place. The energy sector has reached that tipping point; while coal-fired power plants still exist, nobody wants to invest their own money in new carbon-fired generation. Defence has not reached that tipping point yet; its investment program is still built around acquiring new, extremely expensive, crewed platforms.

To be fair, nobody really knows when that tipping point will occur. It will likely occur at different points for different kinds of platforms and there will be a range of views—unlike Defence, I wouldn’t be acquiring a new manned attack helicopter to replace the army’s Tiger—but it would be an extremely brave chief of the defence force who recommended turning off investment in crewed submarines right now. It’s understandable that in the face of uncertainty Defence defaults to what it knows, which is crewed, multirole platforms.

So it’s likely that Defence will end up with stranded assets. One way to mitigate the harm is to modify or re-role them over time. Depending on the disruptive technology that’s potentially stranding them, that may or not be possible; I’m not sure whether it will be possible to reverse engineer electric drive and batteries into a 40-tonne infantry fighting vehicle sometime in the 2030s, for example.

What about the disruptive threat posed by robotic and autonomous systems? There’s a growing consensus that the future of autonomy in militaries will take the form of MUMT (manned–unmanned teaming) or HUMT (human–machine teaming) in which large, crewed platforms continue to play a key role.

For the Australian Defence Force that recognition is significant progress in itself; its focus is increasingly on what robotic and autonomous systems can do, rather than on what they can’t. We can see this conceptual development in action as the argument for the army’s infantry fighting vehicles moves from one driven by protection (something increasingly implausible as threats proliferate) to one in which the vehicle is a key command and control node in a web. Similarly, the navy’s robotic and autonomous systems strategy presents a quasi-fractal picture in which large, crewed platforms launch uncrewed ones, which in turn launch progressively smaller uncrewed ones.

In the shorter term, HUMT concepts are probably more viable than a force structure based largely on autonomous systems, but whether they can ensure the utility of Defence’s crewed platforms in the longer term seems doubtful, at least as they are currently designed.

To explain this, let’s unpack the benefits of autonomy. Many of its advocates argue that the key positive is removing humans from the battlefield, but for me that’s a result of a larger concept, namely disaggregation. Over many decades we’ve seen the aggregation of capability as individual platforms incorporate more sensors, more weapons, more processing power and more power generation to boost their survivability and, importantly, that of their crew. This has driven their increasing size and complexity, which in turn has driven the time required to design and build them. It also drives ever upwards-spiralling costs. We may not have quite reached the Death Star, but we’re well on the way.

Disaggregation offers a way to reverse this trend. It means distributing systems and capabilities into smaller packets. Those packets are orders of magnitude simpler, and simple things are easier to design and faster to build. Those simple systems are not identical and each is designed to do only a small number of things. That means they’re cheaper, so they can be built at scale and easily written off. But each will enjoy the benefits of significant processing power.

Removing humans from combat platforms is just another form of disaggregation, reducing the complexity, size and cost of those platforms while also delivering the benefit of removing people from danger.

Autonomy (along with the command, control and communication systems, and artificial intelligence that enable it) allows you to reaggregate those simple systems into complex networks. Whether your conceptual language describes that whole as a ‘distributed kill web’, ‘mosaic warfare’ or something else, autonomy allows large numbers of simple things to do tasks beyond the ability of small numbers of complex things. Because they’re cheap, those simple things are attritable and replaceable, and the whole is more resilient. At the core of these concepts is a commitment to and trust in the ‘smart, small and many’.

In the near term, there’s no alternative to HUMT concepts in which the smart, small and many work with our few and large crewed platforms. Some platforms coming online are designed to work with robotic and autonomous systems. The Arafura-class offshore patrol vessel, for example, will operate uncrewed air, surface and underwater systems. But autonomy potentially allows us to reimagine and reinvent some existing platforms. With their large capacity, the Canberra-class landing helicopter docks could potentially be the ADF’s most effective anti-submarine platforms, operating large fleets of crewed and uncrewed helicopters, fixed-wing surveillance drones, swarms of small, sonar-towing surface vessels, underwater vessels and so on. They could also be capable strike platforms, whether by launching something like the loyal wingman unmanned aerial vehicle or simply hosting the army’s long-range strike missiles.

But looking further ahead, the idea of adapting existing crewed platforms becomes less tenable. There are several reasons for this. If one of the strengths of the future network is that it provides resilience by being comprised of many small, cheap and ultimately attritable components, why would you create a small number of points of failure in that network in the form of large, irreplaceable crewed platforms.

And while Defence’s mantra is ‘integrated by design’, many of the crewed platforms being acquired by Defence have fundamental limitations in terms of being able to be integrated with autonomous systems. Put another way, why would you tie your agile autonomous systems to something like a 40-tonne infantry fighting vehicle that’s difficult to deploy and sustain on operations, and is an easily detectable and targetable point of failure? If you were to design a land or maritime platform that was to be a fully integrated mothership or command node for large numbers of largely autonomous systems, it probably wouldn’t look like an infantry fighting vehicle, or a Hunter-class frigate.

HUMT concepts will no doubt be a core element of warfighting for a long time to come. Whether the humans in those concepts will crew the platforms Defence is currently acquiring is doubtful. That suggests Defence should be exploring concepts and technologies that produce a capability return on its financial investment sooner, before those investments are stranded. No company would invest in infrastructure that won’t produce cash flow for nearly 20 years, but that’s precisely what Defence is doing with its future submarine project. There may still be a place for governments to take that risk, but it should only be one element of their capability investment portfolio—and in an era of rapid technological change, it probably shouldn’t be their biggest one.

Defence budget climbs to $44.6 billion

The 2021–22 budget was a ‘no surprises’ one for Defence. The government set out its plan in the 2016 white paper, reaffirmed it in last year’s defence strategic update and is now providing Defence with the funding it promised to deliver the plan. The size of the budget is as expected and that’s good news, but it’s how it can be spent to acquire more offensive firepower well before the 2030s that matters most. The budget tells us little new here.

Because defence ministers no longer state the size of the defence budget in their budget night media release, here it is: $44.6 billion. You can find it in Table 4a in Defence’s portfolio budget statements. That’s the consolidated number for the Department of Defence ($43,560.7 million) and the Australian Signals Directorate ($1,057.9 million). That’s an increase on 2020–21 of 6.1% in nominal terms and 4.1% in real terms.

Once we take into account things such as foreign exchange adjustments and funding supplementation to conduct operations, that amount is pretty much bang on the government’s funding commitment set out on page 54 of the defence strategic update. That’s consistent with the government’s history of delivering on its funding commitments stretching back to the white paper. In short, the defence budget is continuing its solid growth.

Despite the lack of surprises, there are a few significant things to see here. One is that Defence’s acquisition program is continuing to move a lot of money. I’ve noted several times that much of the growth in the budget is focused on that program. If we take a step back to the 2020–21 budget, the government was planning a huge $3 billion (27%) increase in Defence’s acquisition budget, from $11.2 billion to $14.3 billion. Considering Defence had only achieved roughly 5% increases in preceding years, that was very ambitious, particularly in the middle of Covid-19 pandemic that was interfering with global supply chains. Was it overly ambitious?

In the mid-year budget update, it looked like Defence was going to get very close. Alas, it was not to be. On paper, Defence has come up $1.6 billion short. But a big part of that can be accounted for by significant foreign exchange adjustments that reduced the acquisition budget (as the Aussie dollar strengthens, Defence doesn’t need as much cash to acquire equipment from overseas). Regardless, Defence still exceeded its 2019–20 achievement by more than $1.4 billion. That’s 12.9% growth, not a bad achievement for a pandemic year.

It’s a good sign for Australia’s ability to rapidly develop defence capability in the face of increasing strategic uncertainty. Put another way, when the government and Defence send clear and consistent (and funded) demand signals, industry has shown it can respond. That demand signal continues with a $3 billion (25%) increase in the acquisition budget planned for the coming year.

Defence hasn’t yet provided us with the split between local and overseas spending for 2020–21 and 2021–22, but it will be interesting to see if Australian defence industry is finally managing to absorb more of the acquisition budget than its historical one-third share. That will be crucial to boosting sovereign industry and military capability and mitigating supply chain risks.

For those who monitor defence spending as a percentage of GDP, this year’s budget is a lesson in why it’s wise not to obsess about minor changes in those figures. Even though the government is providing the funding set out in the defence strategic update, that doesn’t look as good as a percentage of GDP as it did a year ago. There are two main factors: GDP has recovered much faster than was anticipated in last year’s budget and Defence has received some big nominal reductions to its funding due to exchange rate adjustments. In essence, the denominator has grown while the numerator has shrunk.

In last year’s budget, Defence spending looked like it would be around 2.19% of GDP for 2020–21; it’s come in around 2.04%. Similarly, this year was forecast to be 2.27%; it’s now looking like 2.09%. Don’t fret, those percentages mean nothing; Defence is still getting the money set out in the strategic update (and before that in the 2016 white paper).

As operations in the Middle East wind down, the cost of operations is the lowest it’s been since before the 1999 East Timor intervention, going from $751.4 million in 2020–21 to a predicted $271.5 million in 2021–22. Taking into account that $136.2 million of that in 2020–21 was Operation Covid Assist, it’s dramatic ramp down.

The naval shipbuilding enterprise continues its inexorable rise. It didn’t hit its $1.9 billion target for 2020–21, but still got to $1.6 billion. This year it’s aiming for nearly $2.5 billion. It won’t get there but should comfortably exceed $2 billion.

The two biggest spenders in the enterprise for 2021–22 are, not surprisingly, the future submarine ($982 million) and future frigate ($655 million) programs. With both some time away from the start of construction, those numbers have a long way still to grow, so the enterprise will most likely exceed $4 billion per year in a few years’ time—and that’s before we take the new shipbuilding programs announced in the strategic update into account.

Much uncertainty remains around the sustainment cost of the air combat fleet (Tables 27 and 55). The forecast operating cost for the F-35A seems impossibly low. The air force wants to more than double the F-35A’s flying hours in 2021–22 while decreasing its total sustainment cost. On paper that results in a decrease from around $49,000 per flying hour in 2020–21 to around $18,000 per hour in 2021–22. Tell ‘em they’re dreamin’.

Meanwhile, the flying cost of the combined Super Hornet and Growler fleet already seemed impossibly large at over $61,000 per hour, but that’s predicted to grow even further to $76,000. Granted, those numbers include spiral upgrades that traditionally would be treated as capital acquisition, not sustainment. But it’s still a very expensive capability.

Points like that may be individually interesting, but they are all part of the larger and most fundamental question for Defence—and new minister Peter Dutton—of how can $575 billion in projected spending over the decade deliver more capability faster? It’s increasingly clear that procurement projects that won’t deliver until the 2030s need to be supplemented by much faster initiatives that deliver offensive capability in the 2020s (like production of advanced missiles). And that means changed plans and different approaches to capability development and delivery.

We don’t get many insights from the budget papers into how or even whether this shift is occurring. No doubt Dutton will reveal more around this as he gets to grips with the huge Defence machine and properly aligns acquisition and budget plans with the urgency demanded by our strategic environment.

Finally, credit where credit’s due. Following on from some significant improvements in the presentation of the portfolio budget statement last year (discussed here on page 24), Defence has provided some further additions this year that enhance transparency. The first is that the top 30 acquisition projects table (Table 54) now also includes spending on capability elements other than military equipment such as facilities, information and communications technology (ICT), and science and technology support. This provides a more complete view of the total cost of acquiring capability. In some cases, the cost of the other elements is a very significant component of the total cost. Take the offshore patrol vessel, for example. It’s budgeted at $3.7 billion for the ships themselves, but there’s another $981 million for the other elements, mainly enhanced infrastructure.

The other addition is that for the first time in any of Defence’s reporting, there’s some information on its ICT program (Table 59). It’s only the top five ICT projects, but that’s a big improvement on nothing at all. Some of those projects are very large by any standard; the Enterprise Resource Planning program that is intended to transform Defence’s business functions has an approved budget of $604 million and a planned spend for this year of $146 million. Since it’s crucial to the success of Defence’s transformation strategy, it’s good that there is finally a modicum of transparency around it.

An Australian public service reserve?

Last month, I looked at Defence’s growing external workforce, in particular its 6,500 or so contractors, who provide ‘skills that would normally be maintained in the Australian Public Service or Australian Defence Force … to perform day-to-day duties of Defence’ (here and here).

I did this not to advocate a particular balance between Defence’s internal and external workforces but to highlight the coming challenge for the defence organisation and industry. Under the government’s funding model, Defence’s total acquisition and sustainment budget will grow from $23.3 billion in the 2019–20 financial year to $52.9 billion by the end of the decade. Even if only half of that is spent in Australia, that’s $26 billion a year for domestic industry to swallow. And Defence will still need people to manage the projects spending the other half overseas.

Delivery of the government’s elephantine capability program over the next decade will test Australia’s workforce, whatever model or combination of models Defence relies upon. We are all going to have to think creatively about how to generate the required workforce.

Certainly, increasing the supply of workers is crucial, and government and industry measures to increase the number of graduates in science, technology, engineering and maths will be a key part of the solution. But Defence also needs to think creatively about retaining and using the workforce it already has. The department’s new transformation strategy recognises this, stating that the defence enterprise needs to evolve the concept of an integrated workforce ‘to ensure that we are harnessing the full spectrum of skills, experience, insight and diverse thinking that is available’.

Here’s my own attempt at thinking a little differently. Like much innovation, it’s simply taking a model that has been used successfully in one area and applying it in a new one. In fact, the model is close at hand in the form of the Australian Defence Force’s total workforce system. The TWS acknowledges that Defence ‘needs a contemporary, flexible and agile workforce environment’ and establishes a spectrum of service categories under which individuals can perform different kinds of work under different conditions.

Under service category 3, for example, the ADF can draw on reservists for ‘a short to medium term contribution … to capability’ or for ‘provision of specific skills and qualifications suited to a particular task, which are not readily available within the Permanent force’.

What this means is that ADF personnel who have left full-time service and remain on the books as reservists can return to perform time-limited tasks. They are paid at a daily rate equivalent to the amount earned by their regular-service peers. A colonel is paid around $550 per day—a fraction of what an equivalent contractor would get. Areas in the ADF can bid for an allowance of reserve days and can then spend them on this pool of labour.

The benefit of such an arrangement is that it avoids much of the administrative overhead of tendering for services while having much lower costs than standing external panel arrangements. And it draws on people who know Defence and have demonstrated skills that it needs. Those reservists are now a key part of the ADF’s workforce model.

Many staff who leave the Australian public service have valuable skills—demonstrated by the fact that a large number of them continue to work as contractors with Defence through various service providers. Why couldn’t Defence establish an APS reserve to make use of these people without paying contractor rates?

Such a scheme would mean APS staff who have left full-time employment could voluntarily remain on the books as a panel of trusted, skilled workers who would be available for short-term tasks, or longer-term tasks on a part-time basis, and be paid daily rates equivalent to what their full-time colleagues earn.

It’s likely that this kind of reserve arrangement would appeal to many APS staff, such as those transitioning to retirement and seeking a more flexible working arrangement or those wanting some income while they pursue a sea- or tree-change. All of these types of people are found in the ADF reserve. Many would prefer to work directly for the Commonwealth rather than for private contractors even if the remuneration is lower.

There a number of tasks these workers could do beyond acting as short-term fill-ins for permanent desk officers. They could, for example, develop project or planning documents and conduct reviews or red-teaming exercises. They could also supply surge capacity in the lead-up to a large exercise or ADF activity.

There are other potential benefits. Currently, senior ADF reservists on short-term tasks can work closely with junior officers, developing and mentoring them. There will likely be similar benefits in an APS scheme in which a retired high-level officer works closely with junior staff.

Like any services panel, participants would be subject to assessment to ensure quality, and robust arrangements would need to be in place to avoid nepotism.

No doubt there will be those who will say it can’t work within current APS strictures. Revisions to legislation may be required. But with Defence’s transformation strategy replete with references to agility, adaption and innovation, it’s time to start pushing the boundaries. Of course, if the model is successful, there’s no reason why it couldn’t be expanded beyond Defence to bring the benefits of cross-portfolio pollination to the government sector.

This is just a small part of the solution. It will only provide individuals; it won’t deliver entirely outsourced functions. But the scale of the workforce challenge is so big, we are going to need many different solutions. And if it saves $1,500 a day for some of the hundreds of thousands of days of work currently performed by contractors, it will be a bonus for taxpayers too.

Defence risks explosion in external workforce costs

In the first part of this series we saw that Australia’s Defence Department is increasingly reliant on a large number of contractors that are costing a lot of money. Should we be worried about this trend? And, if so, what should we do about it?

The fact that a contractor’s daily pay rate is substantially more than what Defence pays its own staff isn’t necessarily a problem. The value Defence should get from paying more is performance and flexibility. If the major service providers on Defence’s support services panel supply it with the skilled workforce it needs, when it needs it—and only when it needs it—then potentially it’s getting value.

But it’s not just about the financial bottom line. A key element of value that is very difficult to quantify is the ability to be a smart buyer (or sustainer). In addition to the risk of overpaying, there’s the risk of outsourcing skills that need to be kept in-house. The navy learned this the hard way when it couldn’t get any of its amphibious ships to sea. It’s been implementing the recommendations of the Rizzo review ever since to rebuild its core engineering skills.

As I noted in the first part, there will always be debate about which functions frontline units need to retain and which can be performed by external service providers. The navy has recognised the need to upskill its technical workforce, implementing measures such as the Fleet Support Unit, which develops its people’s skills when they are onshore to take with them to sea.

Defence is continuing to explore the benefits of outsourcing. Its use of commercial partners under the HydroScheme Industry Partnership Program to undertake surveying tasks is likely to provide better services at a better price. But now that it has outsourced everyday hydrographic tasks, it will be interesting to see whether the navy can develop and retain a critical mass of internal skills to perform the hydrographic tasks that can be done only by uniformed personnel.

It’s hard for outsiders to assess whether Defence is getting value for money. So the announcement earlier this month that a Senate inquiry will investigate ‘the current capability of the Australian Public Service’, including staffing caps and the use of external workers, is a timely one (even if such inquiries are prone to political point-scoring).

We need to have informed discussions about value and avoid simplistic assumptions that fewer public servants means greater efficiency. The first principles review of Defence commissioned by the government cautioned that ‘the focus on setting arbitrary targets for public service reductions in Defence does not encourage good business practice’, and the government accepted its recommendation that ‘the use of measures such as the teeth-to-tail ratio … should cease’. But conversely, assumptions that jobs traditionally performed by public servants need always to be performed by public servants need to be tested.

Defence’s external workforce will continue to grow at substantial public expense. So public scrutiny is required, but that shouldn’t just be through one-off parliamentary inquiries. If the exact amounts that public servants are paid are public, why shouldn’t the amount of public funds that contractors and consultants are paid to do the same work also be made public? This information need not necessarily state what individual service providers or companies are paid for particular pieces of work, but there’s no reason why the salary bands that the support services panellists use shouldn’t be public.

As the saying goes, what gets measured gets managed. So Defence needs to demonstrate it has systems in place to measure the value it is getting from its external workforce. If Defence doesn’t know what benefit it is getting for what cost, that should be immediately rectified.

Since publishing the first part of this series, I’ve been told Defence is about to conduct a review of its major service provider arrangements. This is the right thing to be doing now that it’s two years into the program. Commendably, there will be a public report to promote transparency and continuous improvement. I’d encourage everybody with an interest in issues relating to Defence’s workforce to seek out the terms of reference and make a submission.

The reduction in Defence public service positions appears to have bottomed out. The 2020 strategic update slated a small increase in positions and stated that the government will consider Defence’s longer-term workforce requirements in 2021. But it’s unlikely that the government will let Defence’s project management workforce grow substantially, particularly when it’s also pushing to reduce acquisition red tape. It seems ironic that the government is touting jobs for life for shipbuilders and their children and grandchildren, but seems to prefer a much more ‘flexible’ workforce model in other vital areas.

There are other issues coming down the track to consider. The funding model and investment plan presented in the 2016 defence white paper and reconfirmed and extended in the strategic update foreshadows substantial growth in Defence’s acquisition budget. If the government achieves its goal of increasing the share of that budget that is spent domestically, Defence’s local acquisition spend could grow from $2.6 billion to $10 billion a year by the end of the decade—that’s in addition to local sustainment costs that could pass $15 billion a year. Not only is the industry workforce going to have to grow dramatically to deliver and sustain that amount of capability, but so too will the number of people managing those programs. Debating whether they should be public servants or contractors is an academic exercise if Australia can’t develop the requisite workforce in the first place.

As demand outstrips supply, simple market dynamics state that the cost of that workforce will grow. We risk a three-way bidding war between Defence, major service providers and industry—all of which require a workforce with similar skills. Defence has only limited means to improve its remuneration to public servants. Industry providers, however, can charge whatever the market will bear.

As Defence comes under greater pressure to deliver a domestic capability program reaching $25 billion a year, it will likely employ the main tool at its disposal, which is simply to pay more for a contracted workforce. If we are concerned about the disparity between public service and contractor pay rates today, that gap could be about to get even bigger. While the government is comfortable capping public service numbers, it may also need to find ways in the long term to exert downward pressure on contractor rates. Regardless, Defence will likely need to make some hard decisions about what skills it needs to keep in-house, and what it can rely on its industry partners for on an enduring basis.