Defence and Industry relationship fundamentally redesigned

Defence and Industry relationship redesigned

KPMG Australia today welcomed the Federal Government’s Defence White Paper, Defence Industry Policy and Integrated Investment Program as an important milestone towards a new export and innovation-focused relationship with the Australian defence industry.

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KPMG Australia today welcomed the Federal Government’s Defence White Paper, Defence Industry Policy and Integrated Investment Program as an important milestone towards a new export and innovation-focused relationship with the Australian defence industry.

Mike Kalms, KPMG Australia’s Defence Industry Lead Partner, and member of the Government’s Expert Panel attended the launch: “This White Paper is good for Australian industry, but in particular for those that are innovative, collaborative and internationally focused,” he said.

“This Defence Industry Policy signposts a complete redesign of the relationship. Industry will be at the head table in Defence equipment decision-making through the announcement of Fundamental Input to Capability status. Having listened to the Prime Minister and Defence Minister today, you could feel their genuine ambition to better leverage innovative Australian business.”

While $195 billion of capital expenditure over the next 10 years – a material increase on recent promises – will reassure the international prime systems companies prominent in the Australian defence sector, it’s the smaller Australian innovators that should take the most from this new Industry Policy.

Mike Kalms noted: “The Government’s broader Innovation Agenda has significantly impacted this White Paper. Whilst the detail is still to come, $230 million for the Centre for Defence Industry Capability, $640 million for an Innovation Hub and a further $730 million for the Next Generation Technologies Fund represents a $1.6 billion, 10-year investment which should flow to Australian companies and entrepreneurs.”


Innovators and Entrepreneurs

It is not typical to describe an innovation and enterprise segment in the Australia Defence Industry Sector – but this Industry Policy may in fact be remembered for being the document that first established its foundation.

“If the CDIC is well led, the Innovation Hub and Next Generation Technologies Funds are well managed and the cultural change described in the First Principles Review is delivered – Australia could witness the growth of an export focused, collaboration-orientated group of national security entrepreneurs.”

“This in fact could be the most exciting aspect of the entire White Paper. Just as the start-up mentality begins to gain traction in the Australian economy, Defence injects hundreds of millions into accelerating those ideas into reality – to the benefit of Australia’s national interests. If that’s on offer here, Australia’s defence industry will sign up,” said Mr Kalms.


Prime Systems Integrators

For the global defence systems integration companies that largely dominate the prime contracts awarded by Defence, the traditional focus has been the Defence Capability Plan (DCP), where the major investments in equipment were described.

“In this White Paper the DCP has been replaced by the Integrated Investment Plan (IIP). The difference is the IIP attempts to describe the entire budget for a new capability – not just the equipment cost. The IIP includes the cost of infrastructure, information technology, and trained people (defence and contractors). As a result of this move to an IIP, the calculations Prime Systems Integrators need to perform to understand the scale and timing of their business development opportunities is made harder.”

“An important consequence is the requirement for an increased focus on collaboration. Primes will no longer be able to simply focus on delivering the equipment. The IIP reinforces signals already in the market, which Primes will need to work more and more with infrastructure, information technology and Defence service and innovative SME’s to address the full scope of Defence requirements.”


Small to Medium Enterprise

The redesign of the industry engagement programs most benefits SME’s, according to Mr Kalms. “The move from some 35 disparate Defence support programs (not including tens of other Federal Government and state industry support programs), to two streamlined avenues for the defence industry to interact and collaborate with Defence is a big change.”

The Centre for Defence Industry Capability (CDIC) is the cornerstone of the new Policy. “It’s presented as the regionally accessible ‘shopfront’ for SME’s seeking to work with Defence, providing a case management style of support to assist business understand Defence’s technology and service requirements, seek support and/or sell innovative ideas and technologies that potentially give the ADF an edge.”

Australian Industry Plans remain important and are facilitated by the CDIC, according to this Defence Industry Policy. Skilling, STEM and exports remain a focus for the CDIC and the Global Supply Chain Program is flagged as the preferred future delivery model - taking the Australian defence industry to global markets.


Infrastructure and Information Technology providers

Like the Primes, the IIP makes the analysis work of the Infrastructure and Information Technology (IT) companies supporting Defence harder. A possible consequence of the IIP is that the flexibility normally enjoyed by those Defence officials responsible for facilities and IT will be reduced.

“Whilst this White Paper has been referred to as ‘an investment in the enablers’ by some in the Department, additional funds limited by a more complex approval process will not be welcomed by this segment.”


The Defence Services segment

The Services Sector will most closely monitor the headcount changes in the Department. More work, but no change in the number of people to deliver it will be assessed as market growth by this segment. A steady reduction on the number of public servants will be halted by this White Paper, and the total number of Defence employees will rise from 58,000 to 62,400.

“Whilst the detail is still emerging, it seems clear that the net effect is to reduce headcount in some administrative areas to enable increases in intelligence, maritime and anti-submarine, strike and air combat and land and amphibious capabilities,” said Mr Kalms.

The Defence Services segment will deduce that the agenda of ‘contractorisation’ in project management, engineering, logistics and supply chain services across the Department will continue.



“Today is an important milestone, but it’s just that, a milestone upon a continuing journey of reform and change to the Defence and industry relationship,” said Mr Kalms.

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Defence innovation redesigned

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Further information

Kristin Silva

Head of Communications, KPMG Australia

Mobile: +61 411 110 953

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