Chapter 2 - Key issues

Chapter 2Key issues

2.1This chapter sets out the key issues raised by submitters in relation to the performance of the Department of Defence (Defence) in supporting the capability and capacity of Australia’s defence industry. The consistent concerns raised by submitters included:

conveying the strategic rationale for a sovereign defence industrial base;

the need for clarity on the definition of sovereign capability, the importance of signalling priority capabilities to industry, and collecting data and effectively measuring Australia’s sovereign industrial capacity;

the procurement process: transparency, communication, collaboration, support, evaluation, and red tape;

the role for, and potential spillover benefits to, adjacent industries; and

workforce planning, innovation and commercialisation, as well as research and development.

The strategic rationale for a sovereign defence industrial base

2.2With the COVID-19 pandemic and the Russian Federation’s illegal invasion of Ukraine highlighting the fragility and volatility of supply chains, it is clear that sovereign industrial capability is an important element to safeguarding a country’s national security.

2.3In its 2021 paper, ‘Australian Sovereign Capability and Supply Chain Resilience: Perspectives and Options’, Flinders University articulated the challenge in the following terms:

The COVID-19 pandemic has led many nations to ask whether and in what domains, a greater degree of self-sufficiency should become an explicit national goal. These concerns with sovereign capability are especially prominent for Australia, which has deindustrialised over the past quarter century making it more vulnerable to supply chain shocks at a time of global crisis. It should be of great concern to policymakers that Australia has the highest dependency on manufactured imports—and the lowest level of manufacturing self-sufficiency—of any OECD country, leading to serious deficits in Australia’s sovereign capabilities.

Sovereign capability is deeply rooted in the broader concept of strategy and is strongly connected to and reliant upon the nation’s industrial structure. To make the case for sovereign capability is to make the case for industrial policy, to develop capabilities where they are needed, to help steer the development of the nation’s industrial structure, and to reindustrialise.[1]

2.4The Australian Manufacturing Workers’ Union (AMWU) put it this way:

After the onset of COVID-19 and the interruptions to supply chains that the pandemic has wrought, there has been a shift in thinking away from the “just in time economy” more towards what some have characterised as the “just in case economy”, with calls for a greater measure of national sovereignty to be fostered.[2]

2.5Reflecting on the war in Ukraine, Chris Gardiner, Chief Executive Officer of the Institute for Regional Security, and Dr Pichamon Yeophantong, Head of Research at the Centre for Future Defence and National Security at DeakinUniversity, stated in a joint submission:

On early readings of the lessons from the war in Ukraine, Defence must be mindful of the strategic and operational risks involved in end-to-end supply chain issues as a result of limited inventory and industrial capacity in the face of prolonged, intense, attritional war involving ‘insatiable consumption rates’.[3]

2.6The Defence Strategic Review 2023 (DSR) highlighted that whilst the risk of another power contemplating an invasion of Australia is very remote, the threat of military force or coercion against Australia does not require invasion. Instead, it observed that more countries are able to ‘project combat power across greater ranges, including against our trade and supply routes, which are vital for Australia’s economic prosperity’.[4]

2.7A viewpoint put forward by many submitters was that, in the event of conflict, Australia’s supply chains must be secure and backed by an industrial base capable of meeting wartime needs.[5] The Australian Defence Force’s (ADF) capability strategy and force structure planning must recognise the risks in relying on foreign defence primes and the importance of national resilience underpinned by a sovereign industrial capability. This requires a closer look at Australia’s defence procurement strategy.

Evidence supporting a sovereign industrial capability

2.8A number of submitters also highlighted the strategic rationale for Australia to strengthen its sovereign industrial capability.

2.9The Australian Sovereign Capability Alliance (ASCA) is an industry grouping which has come together to make the case for greater Australian sovereign industry capability. Acknowledging Australia’s dependence on imports and lack of manufacturing capacity, the ASCA stated:

The COVID-19 pandemic has highlighted this dependence on foreign enterprises and governments for [personal protective equipment], respirators and essential vaccines and pharmaceuticals during this crisis. This … problem extends to other key industry domains including Defence Industries and concludes that Australia’s lack of manufacturing resilience leaves the nation dangerously exposed to other crises such as war, grey zone conflict, trade disputes, cyber-attack, natural disasters, future pandemics, and other events.[6]

2.10Chris Gardiner and Dr Yeophantong highlighted the risk of this dependence:

To the extent that Defence favours foreign ‘value-for-money’ supply of weapons, platforms, systems, parts, and expertise over indigenous capability, and relies on foreign production capacity and inventory, it must be clear on the logistics and supply chain risks posed by the military threats that Australia faces—including large scale conventional war not only against it but also against its main suppliers, and involving significantly disrupted maritime trade routes.[7]

2.11DroneShield, an Australian manufacturer of counter unmanned aerial systems, added that in the current uncertain geopolitical environment, ‘it is critical that Australia acquires and holds sufficient strategic supplies across a wide range of equipment and consumables to equip [the] ADF and provide replacement inventory for the used/spent items’. The need for war stocks has been highlighted by the war in Ukraine.[8]

2.12The ASCA discussed the conundrum government has faced in weighing up the costs and benefits of investing in sovereign capability:

Government at the political and administrative level is divided over whether to commit to defence industry at a premium cost to the Defence budget or save federal government money by importing our defence needs. There has been a chronic failure to fully cost the national economic benefits of investment in building a defence industry. Individual ministers and departments, through successive governments over many years, appear to have been working in silos on Australian manufacturing policy. Defence and [ADF Headquarters] appear uninterested in industry capability and at times have actively favoured imports as a fast track to operational capability without considering the strategic benefits of industry capability … The research makes clear that federal and state government spending and investment behaviour has encouraged imports of essential items to reduce federal government outlays rather than to deliver the broader economic benefits of local manufacturing.[9]

2.13Shoal, an Australian-owned complex systems digital design house serving the defence and space industries, submitted that Defence needs to be much better at aligning industry capability with defence strategy which means that Australia must identify which indigenous capabilities are needed for national security.[10] Shoal contemplated the statement in the DSR which purports that ‘there is no more important and consequential ask for Government than protecting the security, interests and livelihoods of its people’, suggesting that, if this is the case, than it follows that there needs to be a focus on the mitigation of strategic risks:

A principal theme for defence industry policy therefore needs to focus on those capabilities that are more closely associated with industry capabilities at the higher end of the “strategic risk curve” as these capabilities have been determined as being of most importance for national security …

A focus on the mitigation of strategic risk … provide[s] the Government with a logical rationale for making investment decisions that affect the local defence industry sector.[11]

Economic benefits of investing in defence industry

2.14Submissions from both defence industry and government highlighted the broader economic benefits of investing in a sovereign defence industry.

2.15Shoal outlined that not only can industry support Defence with the attainment of its desired capabilities for strategic objectives, but investing in defence industry can also contribute to:

the generation of economic activity through goods and services both for domestic consumption and for export;

employment and tax revenue for government;

the development of technology, including dual use technologies; and

national resilience through future-proofing supply chains, domestic manufacturing, and the protection of critical infrastructure.[12]

2.16Additionally, the NSW Government submitted that there was an opportunity to coordinate across levels of government to ensure defence policy is integrated effectively with economic policy in its design and delivery:

So that the role of the Department of Defence in building the capability and capacity of Australia's defence industry and adjacent industries achieves dual defence and economic policy objectives: by implementing well-designed governance, complementary industry programmes and a procurement strategy that advances industry development whilst also delivering value for money.

The Department of Defence is uniquely positioned to coordinate with the States and Territories and to provide direction on whether Australia should be manufacturing complete products or specific components and on how to best combine expertise across States and Territories.[13]

2.17DroneShield stated that:

Strong local manufacturing and defence industries are integral to the future security of our nation, our region and our partners. It will also deliver significant benefits and opportunities across the entire economy and make the most of our highly skilled and educated workforce.[14]

2.18The Department of Industry, Science and Resources (DISR) discussed its role in supporting the growth of industry, including defence industry, and its benefits:

Leveraging the range of industry support initiatives across DISR and Defence increases the opportunities for Australian industry to participate in Defence procurements and meet ADF needs. Defence procurement can be beneficial in promoting critical and dual-use technologies. This can have important spill-over benefits for defence-adjacent sectors such as the civil space industry.[15]

2.19Mirragin RAS Consulting (Mirragin)—a veteran-owned consultancy, specialising in drones, robotics and artificial intelligence—provided an example of the broader benefits of fostering a thriving domestic robotics and autonomous systems industry, stating:

It drives innovation in the commercial sector, attracts investment and generates high-value jobs. This ecosystem nurtures a skilled pool of operators, maintainers, and developers. This contributes to a broader STEM workforce and yields long-term productivity benefits … This includes investment in R&D, funding opportunities, and collaborative initiatives with industry partners. By supporting the growth and development of the RAS sector, Defence can ensure a sustainable and vibrant ecosystem that generates high-value jobs and attracts investment.[16]

2.20Further detail on the role for and benefits of adjacent industries will be discussed later in this chapter.

Other country’s approaches to sovereign industrial defence capability

2.21The approaches of other nations in strengthening their sovereign industrial defence capability in light of the changing strategic environment reflects that finding the right balance between supporting local industrial capacity and capability, and procurement through partnerships with trusted allies is key and allows countries to reap important benefits from both approaches.

2.22In 2021, United States President Joe Biden signed an Executive Order (EO) directing a whole-of-government approach to assessing vulnerabilities in, and strengthening the resilience of, critical supply chains in the form of a 100-day review. This EO was a result of the concerns emerging out of the COVID-19 global pandemic which highlighted the structural weaknesses in both domestic and international supply chains which have the capacity to threaten a country’s economic and national security.[17]

2.23The 100-day review noted that, in addition to a whole-of-government approach, strong relationships with allies and partners would also contribute to revitalising US domestic competitiveness and strengthening supply chains:

The United States cannot address its supply chain vulnerabilities alone. Even as the U.S. makes investments to expand domestic production capacity for some critical products, we must work with allies and partners to secure supplies of critical goods that we will not make in sufficient quantities at home. We must work with America’s allies and partners to strengthen our collective supply chain resilience, while ensuring high standards for labor and environmental practices are upheld … The U.S. should expand multilateral diplomatic engagement on supply chain vulnerabilities, particularly through groupings of like-minded allies such as the Quad and the G7.[18]

2.24In a speech in 2022, the US Secretary of the Treasury, Janet L. Yellen, introduced the term ‘friend-shoring’:

Supply chain resilience is a key focus of the Biden-Harris Administration. The necessity of this work has been illustrated clearly by the events of the past two years—first by COVID-19 and our efforts to fight the pandemic, and now by Russia’s brutal war of aggression in Ukraine. Together, they have redrawn the contours of global supply chains and trade …

These recent shocks to the global economy have refocused global attention on the importance of economic resilience and addressing supply chain vulnerabilities.Working with allies and partners through “friend-shoring” is an important element of strengthening economic resilience while sustaining the dynamism and productivity growth that comes with economic integration.

Friend-shoring is about deepening relationships and diversifying our supply chains with a greater number of trusted trading partners to lower risks for our economy and theirs …

The efficiencies we gain from strong bilateral ties with friends help drive down prices and support U.S. jobs, workers, and consumers.

By taking a more strategic, long-term view of the vulnerabilities in our economic relationships, we can ensure that the trade we engage in will continue to make our economies more innovative, productive, and resilient.[19]

2.25Within Japan’s Ministry of Defence is the Acquisition, Technology and Logistics Agency (ATLA) which is tasked with fostering a domestic defence industrial base, is responsible for understanding the defence supply chain and its associated risks, as well as managing the participation of Japanese companies in joint ventures with other countries.[20]

2.26In its 2021 Defence of Japan document, Japan’s Ministry of Defence outlines that a resilient industrial base will help Japan ‘effectively respond to a challenging security environment’, whereby domestic sales assist in maintaining a strong sovereign industrial base.[21] The document identified three goals for maintaining its defence industrial base, including: ensuring the sovereignty of security; contributing to increased deterrent capability for the nation while improving bargaining power; and improving the sophistication of domestic industry in working with cutting-edge technology. Acquiring defence equipment, for Japan, involves multiple mechanisms including supporting its own defence industry for production, operation and sustainment, but also procuring defence equipment from partners like the US which would aid with interoperability. As such, Japan engages a variety of acquisition methods, including domestic development and production, international joint development and production, and foreign military sales.[22]

2.27The Canadian Government’s Industrial and Technological Benefits policy supports its domestic defence industry by leveraging defence and CanadianCoast Guard procurements to contribute to jobs, innovation and economic growth across the country. It does so by requiring winners of major defence contracts to spend the equivalent of the dollar value of contracts in support of Canadian industry.[23] Similar to Australia’s Sovereign Industrial Capability Priorities, Canada has Key Industrial Capabilities which are designed to help target priority activities in areas of emerging technology with potential for rapid growth, established industrial capabilities in Canada, and where domestic capability is essential to national security.[24]


The [Canadian] Government's decision to leverage defence spending to achieve economic benefits for Canada also applies to sole source contracts, procurements through military allies (e.g. Foreign Military Sales) and other non-competitive procurement arrangements. In these cases, the Government will negotiate directly with contractors to obtain the maximum amount of high-value economic benefit to Canada …[25]

2.29Canada’s Deputy Prime Minister, the Hon Chrystia Freeland PC MP, discussed the need to reconsider the notion that ‘economic interdependence was the best shield against war’ in light of the Russian Federation’s illegal war on Ukraine, and referred to the US Secretary of the Treasury’s concept of friend-shoring, stating:

For some democracies, especially the largest among us, a tempting response to these vulnerabilities will be autarky. But for most democracies that just isn’t feasible. And for all of us, the economic costs would be very high.

A better alternative is what U.S. Secretary of the Treasury Janet Yellen has described as friendshoring—that democracies must make a conscious effort to build our supply chains through each other’s economies.

Where democracies must be strategically vulnerable, we should be vulnerable to each other … Going forward, we should design our government procurement and incentive programs with friendshoring in mind …

Replicated across the world’s democracies, friendshoring is an historic opportunity for our workers and our communities. For Canada and Canadian workers—and for those of our democratic allies around the world—it is an economic opportunity to attract new investment, create more good-paying jobs, and thrive in a changed global economy.

It can make our economies more resilient, our supply chains true to our most deeply held principles, and protect our workers and the social safety net they depend on from unfair competition created by coercive societies and race-to-the-bottom business practices.[26]

Defining sovereign capability and priority capabilities

2.30A central theme raised by submitters was the importance of having a common understanding of sovereign capability across Defence and industry, highlighting that, presently, the definition of sovereign capability and how it is measured within government is often a nebulous concept.[27]

2.31A key message conveyed by submitters was that government needs to provide clarity on which capabilities are required to be sovereign and supported onshore.[28] In order to achieve this clarity, Defence needs to have a wholistic understanding of Australia’s current sovereign defence industry capability which requires data collection and economic analysis.

Definitions of a sovereign defence company and sovereign capability

A sovereign defence company

2.32The concept of sovereign industrial capability necessitates a definition of what a sovereign defence company is. Submitters brought attention to the implications of using particular definitions of a sovereign defence company for Australia’s sovereign capability outcomes.

2.33Shoal referenced the definition of Australian defence industry in the DefenceIndustry Capability Plan, as outlined in chapter 1, which states Australian defence industry consists of:

… businesses with an Australian Business Number [(ABN)] and Australian-based industrial capability … that 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.[29]

2.34Shoal raised the concern that this definition does not recognise where corporate control is exercised which means that ‘it does not recognise the potential of a foreign government to restrict or otherwise inhibit the way that a subsidiary of an international company behaves in Australia’.[30]

2.35Similarly, Jenkins Engineering Defence Systems Pty Ltd (JEDS)—a wholly-owned Australian company specialising in the design, manufacture and marketing of electronic warfare products—argued that a sovereign defence company should be interpreted as a company that is not subject to both foreign ownership and control. That is, as opposed to an Australian defence industry which, while it might employ a majority of Australian staff and have an ABN, it still reports to a foreign parent entity. JEDS noted that ‘foreign parent entities can and have made decisions that restrict access to IP or financial resources for their Australian subsidiaries’. Instead, JEDS pointed to the definition from the Sovereign Industrial Capabilities Priorities (SICPs) whereby:

“Australia must have access to, or control over the skills, technology, intellectual property, financial resources and infrastructure that underpin the capability”.[31]

2.36The Sovereign Australian Prime Alliance (SAPA), an informal grouping of large Australian prime contractors,[32] acknowledged that ‘there is a view among some within Defence that “built in Australia” should be the acceptable threshold for being defined as sovereign (to Australia)’, however:

If this were to be written into the [Defence Industry Development Strategy] it would generate multiple negative outcomes for Australia.

Primarily, it will create an illusion of jurisdictional control over international capability providers. Regardless of contractual pledges of foreign owned entities, the jurisdiction of Australian Courts does not extend outside our shores and would require cooperation from other international jurisdictions (for service of proceedings or injunctions to prevent the commencement of action against Defence in foreign Courts) or the cooperation of the foreign owned corporate itself. This can never be guaranteed even in peacetime, much less during times of conflict, and would create unnecessary risk to the Commonwealth if applied.

SAPA acknowledges the important contribution international defence primes make to Australia's Defence capability and our national security. However, we do not see any legitimate argument for naming international corporations as sovereign to Australia.[33]

2.37Therefore, the SAPA recommended that Defence define international and domestic capabilities as separate, complementary lines of industrial activity. In other words:

… Domestic Capability and International Capability, with domestic capability being defined as "an Australian company that is not a foreign subsidiary, that is based in Australia, controlled by Australian shareholders, and governed by an Australian Board of Directors”.

Identifying capabilities as two separate streams—domestic and international—would have no detrimental impact to the international primes supplying the Australian Defence Force (ADF), but would have an immediate positive impact on Defence's application of current government policy (ie. Buy Australian First and [Future Made in Australia]) and would also help bolster Australia's national security since it will enable focused strategy by Government on the development of genuine sovereign capability in specific, critical capability areas.

It would also assist with future policy development where Defence and Government might seek to direct Government effort towards specific capability areas where Australia has critical mass, critical need, or other imperative.[34]

2.38The definition of Australian defence industry in the 2018 Defence Industrial Capability Plan was an updated definition which added the element of ‘Australian-based industrial capability’ in addition to businesses having an ABN. This was designed to:

… emphasise that having a domestic capability and investment is important to be considered part of our defence industry. The Plan sends a clear message to international companies and partners wanting to do business with Defence that we expect them to invest in our country and our industrial capability. It recognises that transforming Australia’s defence industry requires sustained effort and further work from both Government and industry, and that this Plan is part of a long-term goal to build an industrial base that is resilient, internationally competitive, innovative and high-tech to meet Australia’s defence capability needs and national economic goals.[35]

Sovereign capability

2.39An overarching theme of many submissions was a desire to clarify what government means by sovereign capability. Flinders University highlighted that ‘exactly what is meant by sovereign capability and how it is measured is contested’.[36]

2.40Etherstack, an Australian SME specialising in resilient communications solutions for critical mission environments, described the broad interpretation of sovereign capability:

At one end of the spectrum, sovereign capability could be a capability designed, developed, manufactured and sustained in its entirety in Australia. Alternatively, it could relate only to sovereign control over a capability’s end effects. This diverse interpretation of sovereign may result in misaligned priorities between government, Defence and industry.[37]

2.41Similarly, the ASCA submitted that there is no nationally agreed definition of sovereign capability with ‘an array of interpretations over what is, and what is not, a genuinely Australian owned company or enterprise’. The ASCA stated that it is difficult to solve a problem if the definition of the problem has not been agreed by stakeholders.[38]

2.42Flinders University offered the following definition of sovereign capability:

Sovereign capability is fundamentally about ensuring a degree of self-sufficiency and security for a nation and avoiding the vulnerability of external dependency in key areas of national interest including national defence, population health, security of energy and essential materials, food, and environmental sustainability (climate abatement and response).[39]

2.43Similarly, Etherstack proposed:

Sovereign capability is one whose design, development, manufacture and sustainment can be assured by the Australian Government, uninterrupted, during times of regional or global strategic stress, and its end effects are under the control of the Australian Government.[40]

Balance in achieving sovereign capability

2.44A point emphasised by a number of submitters was that improving Australia’s sovereign capability does not necessitate abandoning foreign military sales (FMS) all together, nor would it be desirable.[41] Indeed, the Australian Strategic Policy Institute (ASPI), a defence and strategic policy think tank, described sovereignty as:

… the combined capability of what Australia can design, build and sustain locally and what we should source from our trusted and reliable international partners, for example through groupings such as AUKUS and our bilateral partnerships.[42]

2.45The Defence Teaming Centre (DTC), a not-for-profit defence industry association, conceded that ‘Australia’s Defence industry is incredibly limited in how it can become fully sovereign’ as Australia does not have the necessary domestic production capacity:

Setting up indigenous production lines beyond build-to-print models is unfit within our current economic set-up. Further, setting up this capability would create a significant workforce drain that Australia's economy cannot currently support, given existing workforce challenges. Additionally, Australia's Defence spending is not significant enough and the procurement processes not efficient enough to support the development of a sovereign latecomer entry to the existing competition between Primes and existing industry.[43]

2.46ASPI also acknowledged that it would be unrealistic to set an objective in which all of Australia’s defence needs are met by local industry, stating that this could actually ‘make us less secure’ and there is a need for balance. Defence must:

… sufficiently isolate those industry inputs that it considers must be sovereign (defined as those technologies and industry inputs to capability that must be accessible to Defence when it needs them and be isolated from supply chain risk whether in terms of adversarial capital or even the capacity limits of our friends). It does not mean all inputs must be produced within Australia … But they must be accessible at all times, which requires defence relationships with not just those who are aligned on security threats but with partners who can be trusted and relied upon even in a crisis.[44]

2.47AUCloud, an Australian sovereign cloud and cyber security services provider, agreed that supplying all defence products and services as a sovereign capability would ‘not only be unrealistic but also unachievable with current global supply chains’. However, AuCloud argued:

… that more of the higher risk supply chains could and should comprise greater sovereign capability (sovereign control and domestic capability). The assessment metric should address areas of strategic imperative to the Department of Defence … For example, the [United Kingdom Minister of Defence] calls out those ‘strategic imperatives’ to be provided onshore (nuclear, crypt key and offensive cyber) that essentially exhibit sovereign capability. Such clarity is not only useful for Defence Industry’s investment decisions but also as a signal to Defence Department personnel as to what is strategically important within the organisation.[45]

2.48Mirragin noted that although ‘a sovereign defence industry is essential to ensure self-reliance and strategic independence, it is not feasible to manufacture all defence assets in Australia’. It would not make sense for Australia to manufacture capabilities—such as Joint Strike Fighters or nuclear-powered submarines, entirely in Australia—rather, off-the-shelf procurement for large assets such as these is entirely appropriate and desirable:

Rather than forcing Australian industry to pivot to industries less compatible with our population size and ability to produce, Defence should focus on where we do have a comparative advantage: emerging technologies.[46]

2.49Similarly, the DTC stated that, in contributing to sovereign capability, Australian defence industry would excel in areas such as sustainment, high technology areas, and niche product support:

Prioritising production in Australia for high-use items like critical spare parts, ammunition stocks, and other commonly replaced items during regular maintenance should be considered. This extends to software development and systems engineering to deliver Australian capabilities, particularly in supporting Defence's C41SR and ICT capabilities … An additional option is for Australia to increase the stock holding of spares and materials to support the sustainment of the equipment.[47]

2.50Thomas Global Systems Australia Pty Ltd (Thomas Global Systems), an Australian-owned manufacturer of high-integrity aviation and defence electronics, argued that FMS acquisitions could be better leveraged by Defence to develop Australian industry, noting that Australia is one of the largest customers of the US FMS program:

There are mechanisms within the FMS acquisition framework that allow for “customer directed sourcing” of equipment being purchased as part of the FMS acquisition, thereby allowing participation of local suppliers. Our company has proven through our recent Apache contract win that FMS acquisitions can facilitate excellent opportunities for Australian Industry Capability (AIC) development, without adding risk, affecting schedule or impacting on configuration. We believe the Department should consider implementing a formal process to ensure every effort is made to include competitive Australian suppliers in FMS acquisitions.[48]

2.51On this point, ASPI added that:

… major multinational prime contractors have not been held accountable to Australian supplier promises within existing contracts and have often used efficiency and cost arguments to justify moving from Australian suppliers to home country or alternative international providers, without challenge or consequence.[49]

Signalling priority capabilities to industry

2.52Another common theme raised in submissions was the need for Defence to improve communication of its priority capabilities to industry so that they can better prepare for and respond to Defence needs.[50]

2.53Defence recognises industry as a fundamental input to capability (FIC) and the vital role it plays in delivering and supporting Defence capabilities.[51] This is clearly an important first step, however the ASPI added that:

Defence must be able to define where Australian defence industry is a fundamental input to capability, clearly articulating specific military capabilities and their attendant procurement or acquisition programs (and contracting authorities) to which industry can respond.

In this regard, it is vital that Defence consider the role of Australian industry in its strategic deterrence objectives, ensuring that there is no doubt at home or abroad that defence will have access to the industry inputs it needs, when it needs them, and in the quantities and at the quality that it needs them for specific operational effects. This will also help identify what Australia needs from its trusted and reliable partners to further strengthen our sovereignty.[52]

2.54From Shoal’s point of view, ‘Defence does not seem to have a clear view on what it wants a domestic industry for, and hence what it wants from that industry’.[53]

2.55This sentiment was echoed by the DTC which stated ‘the general observation is that Defence has little to no understanding of what value industry can offer towards strategic objectives relating to defence outcomes’.[54] The DTC submitted:

Industry seeks clear capability requirements from Defence, evaluated strategically, to ensure ongoing support for Defence in the future. Defining success criteria for industry as a capability and evaluating industry proposals based on those criteria will elicit positive responses from the industry through contracts. Without clear requirements, industry cannot fulfil the role of a strategic capability. Changes to procurement manuals, Defence white papers, strategic reviews, and project definition documents are necessary to articulate industry as an input and shift the industry's current trajectory away from Defence.[55]

2.56ASPI outlined the importance of clearly communicating Defence’s priority capabilities to industry to enable it to respond to those needs:

The Australian defence industry needs to be able to support a priority set of capabilities that meet the current and future needs of the Australian Defence Force. The defence technology and industrial base cannot do so without clear signals and support from the Department of Defence. Industry and investors both need certainty, which requires a basis of long term strategic and economic planning for targeted policies and programs. Businesses and investors can work within a wide variety of investment climates, so long as there is some certainty and constancy in the business environment.

It is also essential that those suppliers identified as having priority inputs to specific defence capability needs are supported to integrate into global supply chains with trusted partners.[56]

2.57As discussed in chapter 1, the government introduced the SICPs in 2018 to identify particular industry capabilities that are ‘critical to Defence and must be developed or supported by Australian industry’. Initially, ten SICPs were identified, with four more added in 2021.[57] Evidence received by the Committee indicated that there was a view that the SICPs were too numerous and broad, and that defence industry needed greater clarity to respond to the priorities.

2.58SYPAQ, for example, stated that ‘the value of SICPs has been diluted by their large number (now at 14) and the tendency to focus on current rather than future, priorities’. SYPAQ recommended that the SICPs ‘be streamlined and future-focussed to provide clear investment signals to industry’.[58]

2.59Additionally, the Queensland Government stated that consistency and clarity of the SICPs, including identification of the components that can be manufactured in Australia, is needed for capability planning if industry is to develop and support them. It recommended that ‘[a]fter the establishment of SICP, regular and consistent engagement with industry by way of early information and future market intent may improve industry confidence for investment’, and that alignment of Defence grant programs with SICPs may also assist industry.[59]

2.60SYPAQ acknowledged the recently announced Defence Industry Development Strategy (DIDS) and welcomed its intention to set out more targeted and detailed SICPs.[60]

Measuring Australia’s sovereign capacity

2.61In order to strengthen Australia’s defence procurement strategy towards securing a sovereign defence industrial base capable of achieving its identified priority capabilities, it needs to be informed by a clear picture of Australia’s current sovereign capacity. A number of submitters highlighted the need for deeper analysis of Australia’s sovereign defence industry base to identify industrial capability gaps and priorities that can be filled by local industry.[61]

2.62As noted in chapter 1, there are gaps in the data that is currently collected and measured about the contribution of Australian industry in Defence procurement as compared with FMS acquisitions. This was raised by ChrisGardiner and DrYeophantong who highlighted that Defence’s annual report contains a measure in its performance criteria on ‘the number of Australian companies involved in Defence procurement’. However, Defence was unable to report on this information due to a lack of data. Chris Gardiner and DrYeophantong stated that ‘arguably, this should have been considered as crucial data, and it is difficult to understand how it was not captured in the normal processes of procurement’. Additionally, another performance measure in Defence’s annual report was the ‘value of contracts awarded to Australian companies’ which had no reference to a target amount against which to assess the actual performance, despite it being reported as ‘achieved’.[62]

2.63Flinders University stated that despite COVID-19 bringing light to the issue of sovereign capability, ‘the Australian Government has yet to commit to the development of a comprehensive national strategy based on a robust assessment of our strengths and vulnerabilities’:

By contrast, in the US, the Biden administration has commissioned a far-reaching top-down review of the state of its supply chains and domestic industrial capability in key sectors. In Australia, despite public anxiety about the lack of self-sufficiency revealed by the pandemic, the response has been subscale and piecemeal … Australia continues to lack a national industrial policy and strategy. Australia could adopt and adapt the US comprehensive and strategic approach with great benefit.[63]

2.64The ASCA agreed that the government should conduct a US-style ‘100-day top-down review of Australia’s sectoral supply chain resilience that is underpinned by nomination of key operational capabilities for independent sovereign control and ownership’.[64]

2.65The ASPI added that once Defence defines clear objectives and priorities, it needs to:

… undertake robust economic planning to determine the required shape and size of Australian industry, helping Australian companies to understand their role and the future opportunities for them. This economic planning should be complemented by the creation of more effective channels to communicate to industry (both incumbent and adjacent), which would value deep and highly targeted engagement in addition to the broader setting of strategic objectives.[65]

2.66Additionally, the NSW Government recommended that the commonwealth conduct an analysis that included consideration of multilevel government coordination:

There is need for a deeper Commonwealth-led analysis about the extent to which Australia should be manufacturing whole products or specific parts and how best to combine expertise and capability spread across States and Territories. This would need to include analysis of the strengths and capabilities of industries across Australia to inform the role of each State and Territory in their contribution to the collective value chain of specific defence products. Deeper analysis on direction is needed so that good policies can flow from that analysis with greater policy coherence amongst defence and industry policy across jurisdictions.

To properly assess and respond to risks that interruptions to supply chains present, the Department of Defence needs a baseline understanding of what industrial capabilities and/or capability gaps exist in each State and Territory, informed by an analysis and direction from the Commonwealth on how far along the value chain we should seek to collectively achieve as a nation.[66]

Issues in the procurement process

2.67Submitters flagged a number of challenges and barriers that defence industry faces in engaging with Defence’s procurement process. These issues revolved around themes of transparency, communication, collaboration, red tape, evaluation and support. Linked in with these themes was an underlying perception that Defence’s procurement process tends to preference contracts with foreign companies or primes over local industry capability.[67]

A preference for foreign contracts

2.68Thomas Global Systems stated that Defence’s ability to support local industry is greatly restricted by the Commonwealth Procurement Rules (CPR):

… which currently penalise Australian industry for development risk as part of value for money criteria. The effect of the CPR is thus often to preclude viable local solutions from ever being a competitive in tenders, given in most cases local companies will need to undertake some development activity versus foreign off-the-shelf solutions. We believe consideration should be given to adjusting the CPR’s value for money criteria to account for the value to the ADF of industrial self-reliance and local capability.[68]

2.69The DTC argued ‘the current Commonwealth Procurement Policy lacks clear direction for the Australian industry, disadvantaging it’. It submitted that Defence ‘should define industry-specific strategic objectives … rather than expecting the industry to develop and detail its own strategic capability’. The DTC stated:

Evaluating Australian industry against foreign government-supported counterparts on a project-by-project basis may seem cost-effective initially, but it fails to account for the ability to sustain, repair, upgrade, or replace systems during times of heightened national security … Defining relative value of technology where intellectual property (IP) can be held in Australia, either through sovereign design or as part of the solution, is essential.[69]

Communication and transparency

2.70A common theme raised in submissions was that industry struggles with a lack of communication, collaboration and transparency throughout Defence’s procurement process. Others suggested that additional support to assist Australian industry and SMEs to successfully engage with the Defence procurement process would be welcome. Some submitters also noted that the evaluation of criteria within the procurement process was opaque. The evidence suggests that improving these aspects of the process would achieve better outcomes both for Defence and industry.

2.71Chris Gardiner and Dr Yeophantong summarised these issues with the Defence procurement process as requiring:

… better engagement with industry in policy and program definition and design; clarity and transparency in articulating and applying tender and grant criteria; and affirmative policy and criteria to build and strengthen local capability, and to address perceived bias in favouring foreign suppliers and service providers, including more funding in grants programs. These should be considered as necessary to enhancing the ability of Defence and of industry to meet the nation’s preparedness and resilience requirements.[70]

2.72Etherstack stated ‘Defence needs to engage Australian industry early, regularly and openly’.[71]

2.73Similarly, Jacobs—a prime contractor who has been supporting the delivery of some of Australia’s acquisition and sustainment projects for nearly 20 years—conveyed that the earliest engagement possible between industry and Defence provides opportunities for industry to better understand Defence’s policy and operational requirements. Furthermore, working together on requirement statements early in the process delivers the best outcomes, especially when these statements allow for innovation and plurality in solutions.[72]

2.74Ai Group, the peak national representative body for the Australian defence industry, submitted that there is a need for ‘deeper and more meaningful consultation, open lines of communication, and fostering a collaborative environment to achieve better outcomes’.[73]

2.75DroneShield advocated for greater accessibility and engagement, particularly with key Defence personnel, arguing that it is fundamental to supporting local defence companies. DroneShield suggested:

[Defence] needs to choose Australian partners earlier in capability development in order to deepen the relationship and get outcomes faster.

Better matchmaking between industry and the right [Defence] personnel would be mutually beneficial and highly efficient, lifting shared knowledge and expertise and ultimately supporting fast tracked delivery.

Our defence industry base should be operating at full scope, able to tackle and participate in major procurements and specialist assignments.

Consideration should be given to funding streams outside “super-major” programs, backing a range of smaller, tailored projects driven by local Australian companies. Those who succeed in delivering required capabilities, should then qualify for larger amounts of work as part of an incentivised system that drives local capability.[74]

2.76SYPAQ called for Defence to provide increased transparency on its minor programs, noting that these programs tend to be more suited to Australian industry, particularly SMEs, given their lower value and risk profile. Presently:

… minor programs are not listed in the Defence Integrated Investment Program (IIP) and public information is generally less available compared to major programs. This creates an uneven playing field where larger firms with better networks—often subsidiaries of foreign primes—have a distinct advantage.

Defence can better support Australian industry by improving access to minor programs for Australian SMEs by:

(a)Increasing transparency by including information on minor programs in the Defence IIP or other similar methods, such as environmental working groups;

(b)Actively prioritising Australian SMEs for minor programs in SICP areas; and

(c)Publishing statistics on the number and value of Defence minor programs being awarded to Australian SMEs compared to large and/ or foreign firms and their subsidiaries.

These initiatives would directly contribute to improving Australian defence industry's capability and capacity by increasing transparency about Defence's needs in areas where Australian companies have the potential to excel. This would give industry the assurance needed to pursue niche advantages that support Defence's requirements. They would also allow Defence to take an agile procurement approach—responsive to the strategic environment and the evolving nature of partnerships such as AUKUS—without increasing its dependence on international inputs.[75]

2.77Jacobs discussed the need for procurement evaluation criteria to be transparent and fair, noting that an indication of the relative importance of criteria should be provided:

Better outcomes are achieved when Defence explains how important aspects of procurements that relate to broader industry policy (e.g., Indigenous participation, SME content, knowledge transfer, building workforce through training and education, etc.) are used in evaluating a specific tender and/or explains how specific mandatory requirements are related to broader policy objectives.[76]

2.78Similarly, the DTC stated:

Defining success criteria for industry as a capability and evaluating industry proposals based on those criteria will elicit positive responses from the industry through contracts. Without clear requirements, industry cannot fulfil the role of a strategic capability. Changes to procurement manuals, Defence white papers, strategic reviews, and project definition documents are necessary to articulate industry as an input and shift the industry's current trajectory away from Defence.[77]

Streamlining the process

2.79A number of submitters raised concerns about the slow pace of and red tape within the Defence procurement process, identifying them as barriers or disincentives for defence and adjacent industries to participate.[78] Others also suggested that there needed to be more certainty of future work in engaging with Defence.[79]

2.80The Queensland Government acknowledged that Defence has been effective in outlining its needs, capabilities, challenges, and so on in various policy documents from the 2016 White Paper onwards. However, it stated that the number of policies is now creating some confusion, particularly for small enterprises. To address this, the Queensland Government suggested:

streamlining policies to be clear and succinct may assist industry understanding;

greater involvement with the states and territories in the development of Defence industry policy may assist in providing continuity and consistency over the long term, building Australian industry and recognising industry and training centres of excellence; and

regular and active [Defence] engagement and communication with industry, [and] the states and territories is welcomed and encouraged.[80]

2.81The Ai Group also discussed the benefits of streamlining the procurement process, stating:

Defence must streamline acquisition processes and cut unnecessary bureaucracy to attract diverse industry participants, including small and medium-sized enterprises. This optimisation is crucial for faster delivery of capabilities to the ADF. By simplifying procurement practices, reducing administrative burdens, and ensuring transparent and fair competition, Defence can expedite the acquisition process and enhance industry participation, resulting in more efficient defence acquisitions. Such streamlining will also help avoid supply chain disruptions and ensure reliable access to inputs for defence industry outputs in Australia. Defence should maintain up-to-date, flexible, and conducive regulations and policies.[81]

2.82The NSW Government identified several time and cost inhibitors to industry engaging with Defence that could be investigated throughout Defence contract lifecycles, including:

Defence Industry Security Program accreditation;

ISO (International Organization for Standardization) certification;


security clearances; and

uncertainty around contracts.[82]

2.83Jacobs agreed that approaches needed to be embraced that facilitate fast-tracking and reducing costs. Typical barriers that take time and add cost include, for example: visas, tax equalisation, and security clearances. Reducing these barriers will be especially important in the challenging new areas proposed to be addressed by AUKUS, such as nuclear-powered submarines and advanced technologies.[83]

2.84Mirragin argued that Defence must reform its procurement process which was originally designed for large assets with multi-decade procurement programs and are no longer fit-for-purpose. This is particularly the case when it comes to rapid pace technologies and relatively low-cost capabilities like robotics and autonomous systems which require procurement processes that can accept a higher level of failure risk. Mirragin explained:

Current procurement barriers disincentivise agile and fast-moving tech-focused small and medium-sized enterprises (SMEs) from entering the industry. Defence should adopt processes that facilitate innovation, collaboration, and faster technology adoption, encouraging the involvement of SMEs in defence projects.[84]

2.85Similarly, DroneShield submitted:

Small and medium size private defence firms offer advantages and are generally open to taking development risk. Unlike major programs run by defence primes, where the Commonwealth often ends up taking risk on time and cost overruns, smaller private sector companies are more agile as long as there is a genuine pipeline of committed contracts in delivery and development …

A genuine pipeline of properly funded contracts for local firms will help build skills and train a workforce—that will ultimately foster much needed sovereign capability and drive advanced manufacturing and technology.[85]

2.86The DTC agreed, stating that Defence must ‘provide certainty of future work … by providing long-term contracts, clear project pipelines and minimising changes in government and procurements processes’. The DTC made the following recommendations:

Assess barriers to entry, including length and cost of procurement processes for industry;

Defence should look at industry holistically and clearly define what it requires before engaging industry;

Review and simplify compliance processes on a regular basis to improve the efficiency of procurement processes; and

Improve communication and transparency by providing clear information on project requirements, timelines, and expectations.[86]

The role for adjacent industries

2.87Submitters discussed the importance of supporting adjacent industries and providing opportunities for them to contribute to the sustainability and viability of Australia’s defence industrial capability.[87] Others also noted the challenges that adjacent industries face in Defence’s procurement process.[88]

2.88ASPI defines adjacent industries as:

… those whose work has defence applications but who do not primarily identify as defence industry because they have other applications as well and have a customer base beyond Defence.[89]

2.89Shoal highlighted that the Australian defence industry cannot exist in isolation from other areas of the national economy. For example, the defence industry requires inputs from finance, utilities, food, medical supplies, transport organisations, and national infrastructure. Shoal stated that it is important that this interaction between defence and adjacent industries is reflected in the National Defence Strategy.[90]

2.90Etherstack agreed that government should include consideration of adjacent industries with mature sovereign capability when developing defence polices and strategies, such as the Defence Industry Development Strategy, submitting that:

Adjacent industries not only develop dual-use capabilities, but more importantly, they sustain supply chains that then have the ability to scale to Defence’s future and unexpected needs. Strong industrial bases in adjacent industries reduce response times to emerging, urgent, or unexpected needs of Defence. This offers the opportunity to accelerate acquisition processes, in line with the intent of the Defence Strategic Review (DSR).[91]

2.91ASPI argued that due to the small size of the Australian defence market, Defence needs to not only nurture the existing defence industry players, but also encourage new entrants to the market—including opening up to adjacent industries with a specific focus on dual-use capabilities relevant to defence priorities. ASPI submitted:

This requires effort from Defence to identify, communicate effectively with and incentivise emerging and different industry players beyond traditional partners. Simultaneously, it also requires improved communication channels with existing suppliers whose short-term competitive instincts are to discourage new entrants and maintain a small industry pool.[92]

2.92ASPI discussed the concept of ‘competitive collaboration’, stating:

There will always be a need for the large defence primes to build platforms and invest in areas that smaller players simply cannot. However, innovation and competition are growing quickly in fields and domains such as cyberspace and space. Authoritarian regimes, moreover, are investing heavily in these areas. Therefore, Australia’s defence posture and capability will need Defence, traditional defence industry and emerging adjacent industries to view collaboration as fostering positive, competitive innovation across sectors, not as a risk to an individual business. Competitive collaboration is the best way to increase the number of trusted and reliable domestic partners and to strengthen their opportunity to grow globally.[93]

2.93The issues raised earlier about the procurement process were also identified as impacting on adjacent industries and their ability to compete with international competitors. In this context, some submitters raised concerns about the timeliness, rigid requirements and unpredictability of the procurement process.

2.94The DTC submitted that the ‘reality of the Defence acquisition process undermines the concept of adjacent industries supporting Australia's defence industrial capability’ as the slow and costly procurement process discourages business from engaging in Defence work compared to commercial ventures. Additionally:

Shifting decisions due to demand changes, internal challenges, and priority adjustments creates unpredictability, dissuading adjacent industries from considering defence projects. The unstable market environment, combined with limited competition, diminishes the overall industry's contribution to defence capability.

Inflexible requirements deter some companies from engaging with Defence. Commercial entities can openly explore cost savings and innovation, while Defence places excessive burdens on industry experts to meet standards and provide documentation. The process for change is time-consuming and costly, often resulting in a negative response to avoid additional short-term expenses.[94]

2.95Similarly, Mr Peter Jennings AO PSM, an expert in national security and defence, posed the question:

… in a country with a relatively limited industrial base such as Australia, it is vital to draw on all industrial sectors to deliver greater military capability and national resilience. There is huge latent capability in companies supporting the resource, energy, finance, IT, transport, and agricultural sectors. But why would those companies seek to diversify their world-leading capabilities into the defence market when they would have to take on the risk of dealing with such a slow-moving, opaque, risk-averse and, at times, capricious customer?[95]

2.96Some submissions also noted that Australian companies often find efficiencies in supplying to foreign militaries rather than the ADF due to these perceived barriers in the Australian Defence procurement process.[96]

2.97The NSW Government, for example, explained that its understanding from engagement with industry is that:

… it is easier to supply the U.S. Government for its defence needs under the U.S. Government Foreign Military Sales (FMS) program where the U.S. Government and a foreign government enter into a government-to government agreement called a Letter of Offer and Acceptance (LOA), than it is the Commonwealth Government for Australia's defence needs.[97]

2.98DroneShield described its experience with the US as compared to the Australian system, stating:

In the US, the US [Department of Defense (DoD)] is proud to point out how they bring non-traditional companies into Defence industry. Indeed, the US DoD has successfully brought DroneShield “into the fold” with a number of current and growing contracts with various agencies—however our counterdrone revenues from the Australian DoD are small (even in proportion of Australian vs US defence budgets). We have built a successful business exporting around the world. The only reason we maintain an interest in the Australian Defence market is that we have expert knowledge around the ADF needing our capability, however it appears that no one in Defence can act on it.[98]

2.99DroneShield added:

Creating a viable local industry takes time and requires continuous nurturing.

Without well-planned, ongoing procurements our industry is forced to shift focus to either overseas orders and priorities, or into completely different sectors not aligned to Defence’s requirements to remain viable.

… without a procurement system that rewards local capability, the industry will struggle to remain viable and that is a challenge for [Defence], risking the Australian Government’s plan to lift sovereign capability.

… Volume and critical mass are essential to underpinning sustainable local supply chains. That’s why local procurement as far as possible must be the priority. We believe by fostering local businesses, [Defence] can help drive a more robust, deeper supply chain over time.[99]

Workforce planning, innovation and research and development

2.100An issue raised by submitters was the need for additional support to facilitate the growth and development of a sovereign defence industry, including workforce planning, innovation and commercialisation, as well as research and development.

Workforce planning

2.101The importance of developing and maintaining a skilled defence and national security workforce in Australia was highlighted by a number of submitters, who emphasized that this is essential to achieving Australia’s sovereignty ambitions.[100]

2.102The AMWU stated that the capability and capacity of any government or commercial organisation depends upon a competent and well-organised workforce, and that highly skilled workers are of critical importance to the success of Defence. The AMWU was of the view that Defence had shown little progress on its goal of ‘developing a competent, well-organised and balanced workforce capable of supporting an industry expected to provide and sustain defence materiel’.[101]

2.103The AMWU also noted that the government’s periodic reversals or amendments to materiel acquisition projects are destabilising not only for those bidding for the project, for whom the process can be time-consuming and expensive, but also for their workforces, with employment decisions affected.[102]

2.104The NSW Government identified through its consultation on industry policy that a critical challenge for the defence industry is the significant workforce skills shortages that the defence and related industries are currently facing. The NSW Government added that the available pathways to resolve this issue through upskilling, training and education bear long lead-times.[103]

2.105The NSW Government acknowledged the commonwealth’s efforts to address these challenges and the levers it has available—such as mid-career-cycle transition and entry pathways for suitably qualified and experienced professionals into the defence industry—and added that:

For adjacent industries, workforce planning is critical to manage the peaks and troughs in defence contracts. This requires ongoing engagement between [the] Department of Defence and industry to provide clarity and direction on DSR priorities and major project pipelines.

The large scale of National Defence investment will place greater demands across manufacturing as well as future operations and maintenance activities.

A procurement strategy that anticipates workforce demand over time across adjacent industries could contribute towards the Department of Defence and the NSW Government working together to develop a range of programs addressing supply and demand and mitigating the transfer of talent away from the defence sector altogether.[104]

2.106Ai Group reasoned that collaborating with industry and educational institutions is ‘instrumental in developing a skilled workforce that meets the needs of the defence industry’s demands’. It recommended supporting ‘initiatives for STEM education, promoting apprenticeships, and fostering industry-academia partnerships ensure a continuous supply of talent to drive innovation and excellence in the defence sector’. Additionally, workforce and skills development should be funded through pathway programs, incentivise hiring from outside the industry, and better strategic planning.[105]

Innovation and research and development

2.107Submitters raised concerns about Defence’s approach to nurturing and incentivising innovation, commercialisation, and research and development. Submissions highlighted that links between government, industry and universities need improvement, as well as the need for additional pathways and increased funding to improve industry’s ability to contribute to Defence capability.

2.108The NSW Government submitted that Defence is uniquely positioned to use its purchasing power to accelerate the adoption of new technologies and processes in Australian business, which would also help boost productivity. Furthermore, it noted that Defence can use its procurement practices to provide incentives for businesses to invest in skills and innovation.[106]

2.109The DTC was of the view that ‘Defence’s innovation models have consistently failed, hindering the embrace of Australian innovation solutions’. It explained:

Despite industry efforts, many local solutions are disregarded in favour of acquiring capability through FMS. To address the future needs of the ADF, Defence must prioritise leveraging Australian innovation to advance capability and support the warfighter. Most industries that have an input into Defence are looking to the future, but there is a gap between the present and the future, and the problem is how to bridge that gap. The industry would be happy to bridge and potentially fund that gap, but we are businesses and must have reasonable certainty in return for their investment.[107]

2.110Similarly, Mr Jennings AO PSM provided insight into the barriers to innovation faced by SMEs:

For many Australian SMEs looking to bring new ideas to market, the overwhelming impression is that there is no access point to engage with Defence and no pathway to put technological innovation into production and military service. An SME perspective which I regularly hear is that Defence is not interest in dealing with SMEs outside of slow grants processes, which drive companies through formulaic Defence hoops rather than seeking to share ideas to develop shared solutions. SMEs with good ideas but limited resources may conclude that the fastest path to productivity is to take their product to the United States. While not perfect, the US Defence system is faster than Australia in identifying good technology ideas and products and in finding ways to rapidly operationalise them.[108]

2.111Mirragin agreed that to promote innovation, investment and research and development:

Defence must simplify and integrate its innovation and procurement processes. This will provide industry stakeholders with the necessary assurance that investment in advanced technology, workforce development, scale proven concepts, is commercially viable and will allow sovereign industry to deliver impactful capabilities to end-users.

This clarity and assurance is particularly critical for SMEs who are key to achieving sovereign capability. It empowers them to responsibly invest their time and capital to develop … capabilities.[109]

2.112Chris Gardiner and Dr Yeophantong highlighted the importance of investing in research and development:

While a number of factors are required to improve Australian military-technological innovation, at the very least there needs to be major increases in R&D.

… Defence R&D is completely inadequate in the context of both Australia’s strategic environment and stated Government sovereign capability intention and policy. Greater investment must be budgeted for Defence in R&D with particular attention … to generating, establishing and strengthening effective pathways from fundamental research to application and deployment in partnership with universities.[110]

2.113The University of Adelaide argued that:

Sustained engagement and resourcing are critical for universities to meet the current and future needs of the defence sector. Without an enduring and collaborative relationship, capacity and capability risks are introduced that cannot be mitigated, or dealt with, in a timely or effective manner.

… With sustained commitment, the university sector can strive to meet the workforce needs of Defence and defence industry and provide cutting-edge scientific impact. Neither education nor research programs can be sustained with intermittent support.[111]

2.114The University of Queensland agreed that ‘universities require greater certainty on where they should focus their defence research investments for strategic planning purposes’, noting that funding has previously been piecemeal. Instead, universities need ‘stronger demand signals from Defence and a sustained, multi-year funding approach to support university research capability’ to achieve Defence’s strategic priorities through innovation, leading to commercialisation.[112]

2.115Similarly, the Australian Technology Network of Universities submitted:

… capability mapping can inform investment in research and innovation and also help all partners to plan and develop the skills pipelines needed to generate that research and take advantage of the opportunities created for job creation, translation and commercialisation.[113]

2.116Furthermore, the University of Queensland added that:

Advancing universities’ ability to partner with Defence, primes and SMEs is critical to supporting the mobilisation of Australia’s national industrial base and strengthening sovereign capability.

… The ability of defence companies, both large and small, to tap into our STEM pipeline, moreover, is critical to maintaining their innovation edge and future viability.[114]

2.117The University of Queensland made a number of recommendations on areas that Defence could better support universities, including:

Translation of strategic urgency into higher education policy clarity;

Improved communication and direction;

Enhanced funding certainty;

Greater agility in contracting processes;

Streamlined support to enable secure and sensitive research; and

Investment in sovereign advanced manufacturing and testing capabilities.[115]

2.118A number of submitters discussed the government’s recently announced Advanced Strategic Capabilities Accelerator (ASCA) and its role in promoting innovation and collaboration.

2.119For example, QinetiQ—an engineering company operating in the defence and security markets—discussed the ASCA’s focus on AUKUS Pillar 2’s advanced capability areas such as hypersonic, directed energy and autonomy:

Australia is an innovative nation with a deep history of problem solving and invention. As the Government looks to reshape the nation’s defence innovation ecosystem with the launch of ASCA, success will be realised through the forging of strong and enduring partnerships with industry and academia, as well as, striking the right balance of international collaboration, knowledge transfer and investment in building Australia’s defence industrial base.

A strong Government-to-Government focus on removing barriers to collaboration and developing clear technology roadmaps most relevant to Pillar 2 will ensure we strike the right balance of international collaboration, knowledge transfer and investment in building Australia’s defence industrial base into the future.[116]

2.120Reflecting on its experience, Jacobs stated that it has worked with academia to broaden its innovation capacity and to develop potential solutions for the ADF. However, it has faced some challenges around technology acceleration which relate to ‘broader institutional and cultural issues such as risk aversion, the lack of specific priorities and requirements, and the lack of criteria supporting deeper defence industry-academia collaboration’. Jacobs acknowledged that:

The new Advanced Strategic Capabilities Accelerator (ASCA) should improve defence-industry-academic collaboration to better translate disruptive new technologies into ADF capabilities and into the defence industrial base supporting such capabilities. However, we feel that an opportunity has been lost by not including industry representation in the governance of the ASCA and recommend this be corrected.[117]

2.121Similarly, the University of Queensland acknowledged that key reforms in the defence innovation ecosystem are underway, but noted:

… to meet the commercialisation and capability acceleration priorities of the ASCA, Defence partnerships with universities, primes and SMEs are essential. Currently, Defence does not have direct visibility of university engagement with the primes and the broader defence innovation ecosystem appears somewhat disjointed and disconnected.[118]

2.122SYPAQ stated that design of the ASCA has recognised the disconnect between Defence’s innovation ecosystem and its capability priorities. However, to maximise the ASCA’s chances of success, SYPAQ suggested that Defence should:

Recruit technical specialists in SICP areas to assess innovation proposals and identify solutions with true innovation potential, and consider enhanced remuneration to compete for talent in a constrained market;

Reinstate the industry secondment model, which was in place under the former Rapid Prototyping, Development and Evaluation (RPDE) program to help increase the technical expertise available to Defence and ASCA;

Provide ASCA with discretion to partner with sovereign industry to identify and remove program or commercial requirements, which are not essential to achieve a minimum viable capability, and require ASCA adopt a more holistic, long-term view of [value for money] requirements and program risk.[119]

2.123The next chapter outlines the Committee’s view and recommendation.


[1]Flinders University, ‘Australian Sovereign Capability and Supply Chain Resilience: Perspectives and Options’, August 2021, p. 1. See: Australian Sovereign Capability Alliance (ASCA), Submission5, Attachment 1.

[2]Australian Manufacturing Workers’ Union (AMWU), Submission 15, p. 11.

[3]Chris Gardiner and Dr Pichamon Yeophantong, Submission 45, p. 4.

[4]Australian Government, National Defence: Defence Strategic Review 2023, p. 25.

[5]See, for example: Shoal, Submission 4, p. 6; Sovereign Australian Prime Alliance (SAPA), Submission6, p. 5; AMWU, Submission 15, p. 11; AUCloud, Submission 23, p. 3; SoftIron, Submission25, p. 2.

[6]Australian Sovereign Capability Alliance (ASCA), Submission 5, p. 1.

[7]Chris Gardiner and Dr Yeophantong, Submission 45, p. 4.

[8]DroneShield, Submission 2, p. 3.

[9]ASCA, Submission 5, p. 3.

[10]Shoal, Submission 4, p. 5.

[11]Shoal, Submission 4, p. 8.

[12]Shoal, Submission 4, pp. 4–5.

[13]NSW Government, Submission 47, pp. 2 & 3.

[14]DroneShield, Submission 2, p. 1.

[15]Department of Industry, Science and Resources (DISR), Submission 12, p. 4.

[16]Mirragin RAS Consulting (Mirragin), Submission 32, p. 3.

[17]The White House, ‘Biden-Harris Administration Announces Supply Chain Disruptions Task Force to Address Short-Term Supply Chain Discontinuities’, fact sheet, 8June2021, (accessed 14 September 2023).

[18]The White House, ‘Biden-Harris Administration Announces Supply Chain Disruptions Task Force to Address Short-Term Supply Chain Discontinuities’, fact sheet, 8June2021, (accessed 14 September 2023).

[19]US Department of the Treasury, ‘Remarks by Secretary of the Treasury Janet L. Yellen at LG Sciencepark’, 19 July 2022, (accessed19September 2023).

[20]Mouton, et al., ‘Establishing a sovereign guided weapons enterprise for Australia: international and domestic lessons learned’, RAND Australia, 2022, pp. 16–18, (accessed14September2023).

[21]Mouton, et al., ‘Establishing a sovereign guided weapons enterprise for Australia: international and domestic lessons learned’, RAND Australia, 2022, p. 22, (accessed14September2023).

[22]Mouton, et al., ‘Establishing a sovereign guided weapons enterprise for Australia: international and domestic lessons learned’, RAND Australia, 2022, p. 17, (accessed14September2023).

[23]Government of Canada, Industrial and Technological Benefits Policy, 2014, (accessed14September2023).

[24]Government of Canada, ‘Key industrial capabilities’, (accessed14September2023).

[25]Government of Canada, Industrial and Technological Benefits Policy, 2014, (accessed14September2023).

[26]Deputy Prime Minister of Canada, the Hon Chrystia Freeland PC MP, ‘Remarks by the Deputy Prime Minister at the Brookings Institution in Washington, D.C.’, 11October2022, (accessed 14 September 2023).

[27]See, for example: ASCA, Submission 5, pp. 2–3; Etherstack, Submission 37, p. 4; Jenkins Engineering Defence Systems Pty Ltd (JEDS), Submission 40, p. 6; Ai Group, Submission 42, p. 2.

[28]See, for example: Defence Teaming Centre (DTC), Submission 3, p. 1; Shoal, Submission 4, p. 5; Queensland Government, Submission 11, p. 5.

[29]Defence, 2018 Defence Industrial Capability Plan, p. 11 (accessed19August2023).

[30]Shoal, Submission 4, p. 9.

[31]JEDS, Submission 40, p. 6.

[32]The Sovereign Australian Prime Alliance (SAPA) comprises of AUSTAL, Gilmour Space, Macquarie Technology Group, and NIOA.

[33]SAPA, Submission 6, p. 3.

[34]SAPA, Submission 6, pp. 3–4.

[35]Defence, 2018 Defence Industrial Capability Plan, p. 13 (accessed19August2023).

[36]Flinders University, ‘Australian Sovereign Capability and Supply Chain Resilience: Perspectives and Options’, August 2021, p. iv. See: ASCA, Submission 5, Attachment 1.

[37]Etherstack, Submission 37, p. 4.

[38]ASCA, Submission 5, p. 2.

[39]Flinders University, ‘Australian Sovereign Capability and Supply Chain Resilience: Perspectives and Options, August 2021, p. iv. See: ASCA, Submission 5, Attachment 1.

[40]Etherstack, Submission 37, p. 4.

[41]See, for example: DTC, Submission 3, p. 6; AUCloud, Submission 23, p. 6; Mirragin, Submission 32, p.2; ASPI, Submission 43, p. 2.

[42]ASPI, Submission 43, p. 1.

[43]DTC, Submission 3, p. 6.

[44]ASPI, Submission 43, p. 2.

[45]AUCloud, Submission 23, p. 6.

[46]Mirragin, Submission 32, p. 2.

[47]DTC, Submission 3, p. 7. Note: C4ISR is Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance.

[48]Thomas Global Systems Australia Pty Ltd (Thomas Global Systems), Submission 16, p. 2.

[49]ASPI, Submission 43, p. 1.

[50]See, for example: DTC, Submission 3, p. 5; Shoal, Submission 4, p. 2; ASPI, Submission 43, p. 1.

[51]Defence, Submission 34, p. 2.

[52]ASPI, Submission 43, p. 2.

[53]Shoal, Submission 4, p. 2. Original emphasis.

[54]DTC, Submission 3, p. 5.

[55]DTC, Submission 3, p. 9.

[56]ASPI, Submission 43, p. 1.

[57]Defence, ‘Fact sheet: Sovereign Industrial Capability Priorities’, p. 1 (accessed20September2023).

[58]SYPAQ, Submission 36, p. 1.

[59]Queensland Government, Submission 11, pp. 3–4.

[60]SYPAQ, Submission 36, p. 1.

[61]See, for example: ASCA, Submission 5, p. 4; ASPI, Submission 43, p. 2; NSW Government, Submission47, p. 9; Flinders University, ‘Australian Sovereign Capability and Supply Chain Resilience: Perspectives and Options, August 2021, pp. iv–v. See: ASCA, Submission 5, Attachment1.

[62]Chris Gardiner and Dr Yeophantong, Submission 45, pp. 4–5.

[63]Flinders University, ‘Australian Sovereign Capability and Supply Chain Resilience: Perspectives and Options, August 2021, pp. iv–v. See: ASCA, Submission 5, Attachment 1.

[64]ASCA, Submission 5, p. 4.

[65]ASPI, Submission 43, p. 2.

[66]NSW Government, Submission 47, p. 9.

[67]See, for example: Shoal, Submission 4, p. 2; ASCA, Submission 5, p. 3; Thomas Global Systems, Submission16, pp. 1–2.

[68]Thomas Global Systems, Submission 16, pp. 1–2.

[69]DTC, Submission 3, pp. 6–7.

[70]Chris Gardiner and Dr Yeophantong, Submission 45, p. 10.

[71]Etherstack, Submission 37, p. 2.

[72]Jacobs, Submission 35, pp. 1–2.

[73]Ai Group, Submission 42, p. 2.

[74]DroneShield, Submission 2, p. 6.

[75]SYPAQ, Submission 36, p. 2.

[76]Jacobs, Submission 35, p. 2.

[77]DTC, Submission 3, p. 9.

[78]See, for example: Queensland Government, Submission 11, p. 6; Jacobs, Submission 35, p. 2; Ai Group, Submission42, p. 5; NSW Government, Submission47, p. 7.

[79]See, for example: DroneShield, Submission 2, p. 3; DTC, Submission 3, pp. 6 & 9; NSW Government, Submission47, p. 7.

[80]Queensland Government, Submission 11, p. 6.

[81]Ai Group, Submission 42, p. 5.

[82]NSW Government, Submission 47, p. 7.

[83]Jacobs, Submission 35, p. 2.

[84]Mirragin, Submission 32, p. 3.

[85]DroneShield, Submission 2, p. 3.

[86]DTC, Submission 3, pp. 6 & 9.

[87]See, for example: Shoal, Submission 4, p. 10; Etherstack, Submission 37, p. 3; ASPI, Submission 43, p.1.

[88]See, for example: DTC, Submission 3, p. 4; AUCloud, Submission 23, p. 5; DMTC, Submission 28, p. 3; Name Withheld, Submission 33; Mr Peter Jennings AO PSM, Submission 46, p. 4.

[89]ASPI, Submission 43, p. 1.

[90]Shoal, Submission 4, p. 10.

[91]Etherstack, Submission 37, p. 3.

[92]ASPI, Submission 43, p. 1.

[93]ASPI, Submission 43, p. 1.

[94]DTC, Submission 3, p. 6.

[95]Mr Peter Jennings AO PSM, Submission 46, p. 4.

[96]See, for example: DroneShield, Submission 2, p. 3; DTC, Submission 3, p. 7.

[97]NSW Government, Submission 47, p. 9.

[98]DroneShield, Submission 2, p. 3.

[99]DroneShield, Submission 2, pp. 3–4.

[100]See, for example: Qinetiq, Submission 21, pp. 3–4; Ai Group, Submission 42, p. 4.

[101]AMWU, Submission 15, p. 1.

[102]AMWU, Submission 15, p. 27.

[103]NSW Government, Submission 47, pp. 8 & 12. See, also: AMWU, Submission 15, pp. 9–10.

[104]NSW Government, Submission 47, p. 8.

[105]Ai Group, Submission 42, p. 4.

[106]NSW Government, Submission 47, p. 11.

[107]DTC, Submission 3, p. 5.

[108]Mr Peter Jennings AO PSM, Submission 46, pp. 3–4.

[109]Mirragin, Submission 32, p. 3.

[110]Chris Gardiner and Dr Yeophantong, Submission 45, pp. 10–11.

[111]University of Adelaide, Submission 20, pp. 2–3.

[112]University of Queensland, Submission 9, p. 8.

[113]Australian Technology Network of Universities (ATN), Submission 27, p. 7.

[114]University of Queensland, Submission 9, p. 4.

[115]University of Queensland, Submission 9, p. 6.

[116]QinetiQ, Submission 21, p. 3.

[117]Jacobs, Submission 35, p. 2.

[118]University of Queensland, Submission 9, p. 7.

[119]SYPAQ, Submission 36, p. 3.