This is the third report in the IPA-SAA Blueprint for Defence series that provides an action plan for reforming Defence.

This new report focuses on what needs to change in how Defence acquires weapons and systems. It sets out how the Government in office after next year’s election can  make use of the powerful latent strengths of Australian companies to increase our military power rapidly – in ways that the Defence organisation is failing to do now.

Australia faces a use it or lose it moment for our struggling defence industry base. Little or no investment from the Defence budget into that industrial base means that, in time, there will be little or no local defence industry.

We are in the incredible position where the current Government’s and Defence organisation’s plan to spend $765 billion in taxpayer dollars on our military over this next ten years will give us a weaker military than the force we have today, until sometime close to 2040.

And it will be one that is even more dependent on increasingly fragile, stressed overseas supply chains over this dangerous period. That is unacceptable.

The six recommendations in this report propose a radical reform of Defence’s procurement systems in ways that will benefit Australian industry. They will change the Defence approach to working with Australian companies and equip our military with the things it needs, in the quantities needed to sustain itself in war.

That’s vital because our worsening strategic outlook means we must become stronger and more self-sufficient rapidly – and because our allies will look to their own needs first in any conflict.

As our previous reports in this series show, Australia’s military force is based on a small number of complex, very expensive systems— ships, submarines, aircraft and armoured vehicles—operated by a small number of highly trained people. These aircraft, ships and vehicles take many years to develop, build and deliver to the Defence Force. For example, it will take twenty years to deliver six Hunter Class frigates to the Royal Australian Navy, and 32 years for Australia to get eight nuclear submarines under the AUKUS program.

The crews also take years to train. Neither these expensive platforms nor highly trained people can be replaced rapidly if lost in combat.

The munitions and missiles that the ADF uses have some similarities to this trend: the production capacity for munitions and missiles is small and mostly runs through the supply chains of a small number of traditional defence firms headquartered in the US, UK and Europe. Order times for advanced munitions and missiles are years from placement to delivery.

Even the giant US military would deplete its stocks of precision missiles within weeks of a major conflict starting and US industry would take years to restock it—something that is a profound strategic weakness and an untenable foundation for deterrence of war or conduct of war should deterrence fail. 

Australia’s military depends on the resupply of these same weapons from the US industrial base, and so would also be unable to operate effectively in any major war that lasted more than a few weeks. The force structure of our military reflects that of the much larger US military, and in response to those demand signals the defence industry both here and in America has designed itself to develop and deliver increasingly complex, increasingly expensive replacements for the current generations of ships, planes, submarines, vehicles and missiles that populate those force structures.

This is an expected result from an economic perspective. Defence is a monopsony buyer and the industry that produces for it has consolidated to be a small group of companies that are now an oligopoly meeting their single big customer’s needs and preferences.  It is a comfortable incumbent situation for both customer and supplier and one that has been a durable model for the long period of peace and relative stability since the end of the Cold War.

But what was suitable for that time of relative peace is unsuitable for our increasingly dangerous times, for 6 reasons:

1. ships, aircraft and vehicles lost in combat will not be able to be replaced in any timeframe that matches the need.
2. Second, the highly trained people needed to operate these big platforms take almost as long to train and develop as the ships and aircraft they use take to produce, and so they will not be able to be replaced at the tempo war requires.
3. The force will run out of all the ‘consumables of conflict’—ammunition, missiles, parts—days or weeks into a conflict and production of replacements will take months, or likely years in the case of many missiles.
4. A fourth reason why our current Defence Force is not suited to more risky strategic times is that our military is likely to face adversaries equipped with large numbers of diverse types of unmanned and autonomous systems, including armed, unarmed and intelligence and surveillance types but the Australian military will not be equipped with similar offensive or defensive systems in any volume.
5. Even if global supply lines remain open, resupply from our American or European allies and partners during conflict is likely to be very slow or even impractical because of the natural priority they will have to meet their own needs first, and finally,
6. Unlike the decades of the Cold War, innovation no longer comes mainly from the closed defence ecosystem made up of the Government military buyer and a small number of large defence prime companies. Instead, innovation is now mainly coming from the tech and commercial sectors outside the defence sector, with militaries including our own struggling to keep up.

The familiar large defence incumbent firms that provide the lion’s share of our military’s equipment are optimised to slowly develop and produce the traditional, large, expensive platforms our military demands.

Meanwhile the wars in the Middle East and Ukraine are demonstrating the military power that comes from ‘the small, the smart and the many’—large volumes of diverse types of armed and unarmed autonomous systems and cheap but precise munitions—typically produced by small to medium enterprises.

In Australia, these smaller, faster firms are not supplying our military. This presents a burning need for change that is not addressed by recent defence reviews and strategies produced by the federal government, including the 2023 Defence Strategic Review, the 2024 naval surface combatant review, and the National Defence Strategy.

If the changed directions for our military recommended by the previous paper in this series are adopted, Australia will need a new approach to Defence’s engagement with Australia’s defence and non-defence corporate world to produce a military that can be sustained in combat for years not weeks and which can absorb combat losses and continue to operate.

This new approach has to break the monopsony buyer-oligopoly suppliers model that has grown up in the defence sector. That’s because breakthrough technologies vital for our military are now mainly coming from the commercial, non-defence parts of our economy.

It’s also because the diversity and volume in missiles, and uncrewed and autonomous systems that militaries now need cannot be supplied by the large incumbent Defence primes but must be sourced from more vibrant and creative medium and small companies and the tech sector (most of which are either entirely focused on commercial markets or, if they do have an existing defence focus, do this with dual use products).

Recommendation 9 from report 2, said: Government should establish an initial $1 billion annual Rapid Acquisition Fund in the Defence budget getting Australian small and medium sized enterprises to produce key “consumables”, of war including munitions, autonomous systems and counter-drone systems. The Fund must bypass Defence’s glacial acquisition processes. Government should direct Defence to have programs underway with industry no later than six months from the election.

Allocating part of the Defence budget to Australian defence industry is a necessary foundation for what follows. Note that the $1billion figure we propose is tiny relative to the $57 billion defence budget in 2024-25.

We should see this figure as a small down-payment on what needs to be a much larger budget allocation to Australian industry.

Countries win wars because they more effectively mobilise their national resources. That mobilisation needs to start before conflict starts. That doesn’t mean our economy needs to permanently be on a war footing. But we need to understand how the broader technological and industrial base can contribute to defence capability – and we need to be drawing on that before conflict starts.

There’s no room for lazy binaries between defence industry and other industry.

Recommendations

Our following six recommendations will change the Defence approach to working with Australian companies and equip our military with the things it needs, in the quantities needed to sustain itself in war. (The numbering continues on from our two earlier papers).

13.  Government should commit to having delivered in its first term of office at least one type of armed combat drone designed and produced in Australia into service with the Australian Defence Force. Overachieving will be welcomed.

One of the problems with the Defence Department’s repeated, failed, policy attempts around Sovereign Industry Capabilities (SICs), Priority Industry Capabilities (PICs), Sovereign Defence Industry Capability Priorities (SICPs) and Sovereign Defence Industry Priorities (SDIPs) is that they essentially conceptually quarantine defence industry as something fundamentally different from broader industry. And the new laws bringing Australian defence industry into the US ITARS-controlled (International Traffic in Arms Regulations) Defense Industrial Base makes that quarantine wall higher. The only way we will be able to mobilise rapidly will be to draw on civilian industrial capacity. It’s not something separate from defence industry: it will be our defence industry in time of crisis and conflict. We need to understand how that will happen now, before conflict starts.

We must take advantage of the industry and economy Australia has, notably the ability of medium and small Australian companies to supply a diverse range of smaller scale products and equipment to our military that can provide mass to what is otherwise a small force. That can start with a first critical need: armed combat drones designed and produced in Australia. This is a symbolic shift in behaviour and speed of action, but if the political will exists it is not even a demanding ‘stretch’ objective, as Australian designed and produced armed drones exist now although they are not yet being acquired for our own military.

14.  Government must bring non-traditional firms into the defence market by launching Operation Cut Red Tape to cut barriers to entry and by creating an Australian Industry Mobilisation and Resilience Council that includes the best brains from the broader private sector.

We recognise that, unlike during the Cold War, many critical technologies and solutions vital for military power are now developed in the wider commercial world, in sectors like mining, space, agriculture, health, telecommunications and even retail but are not finding their way into systems used by our military. We think it is vital to create incentives for companies working in other sectors—notably mining, agriculture and space—to enter the defence market and do business with Defence. Current policies and regulation create large disincentives for companies operating in non-defence markets and protect the incumbents from competition. Left unchanged this will continue to prevent Australia’s military from getting its hands on some of the best systems and technologies.

15.  Government must direct Defence to contract directly with medium and small Australian companies instead of its current practice of working almost solely with big traditional defence primes.

An initiative to buy Australian first where it is sensible to do so will give Australian companies acquisition contracts for militarily meaningful quantities of equipment, instead of drip feeding them on small development grants and pushing them to try to sell their IP or businesses to the big incumbent primes.

16.  Start building stockpiles of ammunition and other consumables of war.

Australia’s war stocks are tiny, designed for an earlier era of deep peace and make us dependent on overseas supplies which, in all likelihood, will not be available in times of conflict or heightened tension. We need to substantially increase our stockholdings of items which could be consumed very quickly in wartime.

17.  Work with the private sector to radically simplify Defence’s over-complicated contracting documentation and provide entirely new simple, short form contracts based on the core Commonwealth purchasing principle of value for money.

18 . Significantly lift the offer of Australian-developed weapons and countermeasures to the Ukrainian military and cooperate with Kyiv on weapons development.

This is not simply to help Ukraine win a war against Russia’s totalitarian aggression, as vital as that interest is for all democracies. Australian military support for Ukraine will also enable us to gain direct experience of the effectiveness of these systems in intense combat. Co-developing these weapons and systems with the Ukrainians in the experimental hothouse of the war will grow the capacity and effectiveness of these Australian companies and their products, while contributing to Ukraine winning its war for survival.

The full report is available at this link