The Defence Industrial Capability Plan—two steps forward
23 Apr 2018|

Minister Christopher Pyne’s launch today of the Defence Industrial Capability Plan continues the production of industry policy information and initiatives under the Turnbull government. Given the material already released, it is a pretty dense field—including the 2016 Defence White Paper, the 2016 Defence Industry Policy Statement and the 2016 Integrated Investment Program (IIP), as well as the Naval Shipbuilding Plan of 2017 and the Defence Export Strategy released in January this year.

So, what’s new in this new plan? There are three main things:

  • a tighter definition of Australian defence industry
  • a list of 10 ‘sovereign industry capability priorities’, along with a framework for making them mean something when it comes to force design and contracting
  • more information on the capability streams that make up the $200 billion IIP.

Here’s what each of these means and why they matter:

As recently as the Defence Export Strategy, released in January this year, Australian defence industry was defined as:

businesses with an Australian Business Number who are providing or have the capacity to provide defence-specific or dual-use goods or services in a supply chain that leads to the Australian Department of Defence or an international defence force.

That’s a pretty low bar. It left whether or not a particular company had any real investment in Australia, apart from applying for an ABN, an open question for the companies themselves to decide.

If you want to have substantive industrial capability in Australia to do defence work, the big end of town matters. Beyond leaving it to individual projects, incentives are required to make the large primes that operate Australian subsidiaries invest more in them over time. The new definition of Australian industry seems to be moving in this direction. It emphasises that companies must have domestic capability and investment to be considered part of the Australian defence industry.

A test of the new policy will be whether it drives the big primes—and international owners of other firms wanting to win defence work—to put more equity into their Australian operations—along the lines of Lockheed Martin Australia’s Stela Lab, or Boeing’s long-term partnership with the CSIRO as examples. A further test will be whether defence companies raise the level of their research and development investment, noting that some 35% of firms in a recent survey said they didn’t invest in R&D.

The 10 sovereign industrial capability priorities cover a wide range of activity and technology—from shipbuilding to combat clothing.

No doubt, various sectors and companies will be unhappy that they don’t see themselves in the list. What’s interesting about the list, however, is that the areas involved are by no means just the iconic big platforms—ships, aircraft, land vehicles and submarines. Three (enhanced active and passive array radar; advanced signal processing capability; and surveillance and intelligence data collection analysis and dissemination) are all about data analysis, sensors and software that can be used across multiple platforms. One is about test and evaluation (so you know what the system you are buying can actually do) and one is even about maintenance (aerospace platform deep maintenance).

Maybe the Defence white paper’s insistence that Defence capability planners and project managers pay more attention to enablers, ICT and through-life sustainment is starting to take more effect.

The $17 million per annum in grants available to develop sovereign industrial capability priorities is obviously not much, particularly when spread over 10 different areas. That makes the government’s intent to include these priorities in everything from early force design thinking through to tender evaluation and the Australian industry capability plans of companies that win Defence work critical.

Adding an extra factor to an already complex process can only be justified if the results show that it works. We should look forward to published data about the effectiveness of Defence’s embrace of this new policy framework in the annual updates that the Minister promises.

The last feature of the new plan is the new information published on each of the six ‘capability streams’ in the IIP (chapter 3 and Annex B). It’s certainly welcome to see additional information published on the directions and expected industry opportunities for each stream in the $200 billion plan, as transparency in policy and implementation allows it to be understood.

However, the published data still falls short of the key things that small and medium-sized firms in particular need to know: when is a big investment in a particular ‘stream’ likely to be made? How much money is being invested, and when? These factors are described as important in today’s plan, although perhaps it’s the job of future work, like the foreshadowed industrial strategies to be released from mid-2019, to provide this information.

Overall, today’s plan represents an advance in policy and transparency. It’s real effectiveness will only be able to be judged by metrics and data published by Defence that give a picture of what is changing and help identify lessons learned—the good and the bad.