Support available to small and medium sized enterprises
6.1
This chapter examines the difficulties small and medium sized
enterprises (SMEs) face in becoming part of supply chains. It explores the
industry briefing days held by the government and prime companies, and the
government programs designed to provide information and targeted assistance to
SMEs to enable them to become part of major contracts and supply chains.
6.2
Small and medium-sized enterprises (SMEs) are an integral part of
Australia's naval shipbuilding industry. Evidence presented to the committee during
the course of the inquiry suggested that SMEs have found it difficult to become
part of supply chains for major defence procurements – particularly where
international prime companies secure Australian defence contracts and utilise
their own established international supply chains. Some witnesses argued that the
federal government does not provide SMEs with the support required to win
contracts and become part of supply chains. Information about how to become
involved in projects and supply chains is reportedly unavailable or difficult
to comprehend. Since the committee began its inquiry there have been some
recent improvements in this area, however, much more needs to be done.
Difficulties faced by SMEs in becoming part of supply chains
6.3
The difficulties faced by SMEs to become part of supply chains were
discussed at the inquiry's public hearings. Mr Serge DeSilva-Ranasinghe,
President, Australian Industry and Defence Network Western Australia advised
that SMEs across Australia encountered issues with obtaining access to defence
contracts.[1]
6.4 One particular barrier for SMEs concerned Australian Defence procurements
won by international primes who utilise their own international supply chain. Mr DeSilva-Ranasinghe
explained:
... The conversations I have had with a range of SMEs would
suggest a lot of frustration with the process. The other thing is that, when we
have prime contractors that are primarily foreign owned, naturally they are
going to represent the interests of their host countries as well.[2]
6.5
Mr Mike Deeks, Managing Director, Forgacs Marine and Defence, noted the
difficulty often faced by both SMEs and primes in surviving periods where
Defence work is unavailable. Mr Deeks stated:
... I would support some of the comments ... that it is quite
difficult to get into Defence business. Even though Forgacs and our parent
company, Civmec, are a large manufacturing company, and so we have the
resources and the capability to weather the long gestation period of Defence
contracts, it is still very difficult. I cannot imagine what it is like for
SMEs trying to do the same thing...[3]
6.6 Mr Glenn Thompson, Assistant National Secretary, Australian
Manufacturing Workers' Union (AMWU), reinforced this point, adding that
there was a lack of information about what support is available to SMEs to help
them get into the supply chain.[4]
6.7
At the Joint Standing Committee (JSC) on Treaties' inquiry into the
agreement with France on the Future Submarine program public hearing, Mr Steve
McCartney, State Secretary (Western Australia), Australian Manufacturing
Workers' Union, described in more detail one particular information barrier
that SMEs encountered when trying to enter the supply chain:
... If you are looking especially at second- and third-tier
contractors that are trying to get into parts of the supply chain and find
their niche, I think it was the amount of different high jumps you had to get
into through government departments to actually get into the supply chain. You
pass a series of alphabet letters coming your way—have you got that capability,
have you passed that capability and have you done this to get into this
position?—and there is really nothing to say how you get into that first stage.
It is almost assumed that you are going to know those three steps to get in.
They talk about those steps as if they exist and everyone should know how to
get there, but there is no way to get there...[5]
6.8
Naval Group Australia stated that since being selected as the preferred
tenderer for the Future Submarine program, it had commenced discussions and the
prequalification audit process with Australian industry to enable them to
become part of the Future Submarine program.[6]
At a public hearing for the JSC on Treaties inquiry, Mr Brent Clark, then
interim Chief Operating Officer, Naval Group Australia[7],
outlined the prequalification audit process for becoming part of the supply
chain:
It is a relatively simple process. What we have done is that
we engage with companies and we go around and meet with them. We do a review
and inspection of the company's capabilities, its quality processes and the
like. Once we have satisfied ourselves with that, we can then do a
prequalification audit. It is a very simple process, so we basically notarise
that all of the things that they have done and said are actually true. We can
actually look at their ISO 9001 accreditation et cetera. Once they have
satisfied that—that is the prequalification audit—they are then able to move into our supply chain from there.[8]
6.9
However, Ms Deidre Willmott, Chief Executive Officer, Chamber of Commerce
and Industry of Western Australia, suggested that the lack of information about
how to become involved and the opportunities available was a barrier SMEs
faced. Ms Willmott referred to the Naval Group contract for the future
submarines as an example:
...I think industry here in Western Australia is wanting to
know a little bit more about what the audit requirements are and what the
skills requirements are. We understand that there is a list of the skills that
they are looking for. I think that is a conversation that is still being
undertaken. I think, if Western Australian companies are
told exactly what the audit requirement of DCNS is, they will quickly work out
whether they are able to meet that audit requirement or whether that is
something that they do not have the capacity to do.[9]
6.10
Mr Clark noted in March 2017 that despite the efforts of Naval Group,
there had been a lack of industry interest in becoming involved in the program.[10] Three months later at the
Canberra public hearing, Mr Clark stated that he no longer stood by those
comments, indeed following his evidence to the committee the 'Australian
industry has stepped up quite strongly'.[11]
6.11
As at 20 June 2017, 106 Australian companies had been identified in the
prequalification process.[12]
Mr Clark confirmed that despite French companies being a part of the Naval
Group France supply chain, no French companies had pre-qualified with Naval
Group Australia for the future submarine project:
...We have done no pre-qualifications with any French company.
We have only been concentrating on Australian companies. What DCNS France does
in France and what DCNS Australia does in Australia are different things. We
will have a very similar process—because the process that has been used in
France is tried and tested—but we are not involving French companies in this
process in Australia, at this stage.[13]
6.12
The committee understands that while it can take a long time for
Australian business to break into the supply chains, it can be worth it in the
end as Mr Dean Rosenfield, Managing Director, Saab Australia Pty Ltd
explained in relation to a small company in New South Wales:
We have only been in Australia for 30 years; they have been
here for 50 years. They are a small company but they have done extremely well.
We use them in our aircraft, we introduced them to the Swedish supply chain, we
have used them on the Collins class submarine where we did the control system.
They are highly innovative, they are mobile, they are agile, and they are
expanding quite rapidly now in the US as well. So I think we have the skills,
we have the knowledge and we have that management capability. It really comes
down to having the patience to wait out the defence cycle, in terms of
responding to tenders, tender evaluation, and getting into contract. I think
that is what makes it difficult for smaller companies.[14]
6.13
As at July 2017, over $125 million AUD in contracts have been awarded to
ten Australian companies as part of Australia's supply ship program (SEA 1652)
contracted to Navantia of Spain.[15]
Industry briefing days
6.14
While the committee heard evidence that SMEs face difficulties engaging
with defence work due to a lack of information being available, the Department
of Defence highlighted industry briefing days as a means to engage local
industry.
6.15
Industry briefing days, conducted by the government and prime companies,
provide an avenue to distribute information about upcoming projects to SMEs, and
to explain how they can become involved in a particular project or a global
supply chain. They provide an opportunity for SMEs to talk directly with primes
and clients to better understand their needs, and also enable primes to gain a clearer
picture of what SMEs are operating in Australia. In 2017, industry briefing
days took place in capital cities and regional centres where primes and SMEs
are located.
6.16
During the June 2017 public hearing, Mr Kim Gillis, Department of
Defence stated that in the last 18 months the Department had engaged with SMEs more
than previously. Significantly, this engagement included work with newer
entrants. Mr Gillis noted that the Department needed to adapt its strategies
and contracting methodology for the newer entrants to the market.[16]
Naval Shipbuilding Industry
regional briefings – Department of Defence
6.17
On 27 March 2017, the Department of Defence announced that it would
conduct a series of naval shipbuilding industry briefings across regional
Australia in April and May 2017. The Department of Defence stated that:
The briefing will focus on the next generation of naval
surface ships; specifically the Future Frigate and Offshore Patrol Vessels,
which represent a $40 billion investment by the Australian Government. The
briefings will provide industry with an update on each project and information
on the Centre for Defence Industry Capability (CDIC) and the Defence Industry
Policy agenda and programs. This will include how industry can get involved in
opportunities over the life of the shipbuilding programs.
6.18
Briefings were held in Geelong, Geraldton, Nowra, Bunbury, Launceston, Whyalla,
Newcastle and Cairns.[17]
SEA 5000 industry engagement days -
Navantia
6.19
In early 2017, Navantia held five industry engagement days in Brisbane,
Fremantle, Melbourne, Adelaide and Sydney. Navantia is one of three companies
currently participating in the competitive evaluation process for the SEA 5000
Future Frigate program.[18]
The industry engagement days were held to explain how Australian industry could
be part of Navantia's bid for the SEA 5000 Future Frigate program.[19]
As an indication of attendance, on 24 March 2017, more than 450 companies
attended the Sydney industry day.[20]
6.20
Navantia stated that its frigate design bid will include a significant
number of Australian suppliers and subcontractors.[21] Expression
of interest applications for the 69 work package contracts associated with the
bid closed on 1 May 2017.[22]
SEA 1000 future submarine program
industry briefing – Naval Group
6.21
In early 2017, Naval Group and the Department of Defence jointly
delivered a series of industry briefings in relation to progress to date on the
future submarine program; future development plans; and potential engagement
opportunities.[23]
Briefings took place in Adelaide, Sydney, Melbourne, Brisbane and Perth. At the
29 May 2017 Senate Foreign Affairs, Defence and Trade Legislation Committee
Estimates hearing, the Department of Defence reported that 706 companies,
research and development institutions, and education organisations had
participated in these industry briefings with 240 in Adelaide, 182 in Sydney,
210 in Melbourne, and 74 in Brisbane.[24]
6.22
At the 20 June 2017 Canberra public hearing, Mr Clark summarised the
success of the industry briefings:
Australian industry has begun embracing the program, as
evidenced by the hundreds of companies that have attended industry briefings
held prior to and after the completion of the bid process. These industry
briefings run in concert with the Commonwealth and combat system integrator,
and our partner, Lockheed Martin Australia. They have been staged in Adelaide,
Sydney, Melbourne, Brisbane and Perth and so far have attracted more than 1,400
attendees from companies and educational and research institutions. Of
particular relevance, I feel, is that there have been some 875 requests for
information, which we have sent to 234 firms nationally. These include 76 firms
from Victoria, 71 from New South Wales, 37 from Western Australia, 36 from
South Australia and 14 from Queensland so far. There are more briefings to
come, in Darwin and Hobart and at the Pacific 2017 naval conference in Sydney.
Regarding all the systems and parts that go on the submarine, they will come
from all over Australia, whether it is Broome, Burnie or Bundaberg.[25]
6.23
In its submission to the inquiry, the former Western Australian government
was supportive of industry briefing days:
The State Government...strongly supports the recent efforts of
Defence, led by CASG, to directly engage with industry through the industry
engagement roadshows for acquisition programs including the Future Frigates and
Offshore Patrol Vessels. The State Government has partnered with the
Commonwealth to deliver these sessions in Western Australia which have provided
local industry with an opportunity to learn about the programs and discuss
their capabilities directly with Defence.[26]
6.24
Local industry membership associations are also involved in promoting
and organising industry briefing days. Chief Executive Officer, Defence Teaming
Centre Inc. Air Commodore Margot-Lee Forster (Retired), explained that:
...We also approach the primes, who we know are trying to get a
sense of the capacity of the supply chain in this country. We approach them and
offer assistance to coordinate our members—and, in fact, anybody who wants to
be a part of a presentation. We will assist the likes of Navantia, Fincantieri
and Damen to get as many SMEs together in one venue—so that these organisations
can talk about their strategy for shipbuilding.[27]
Government support for SMEs
6.25
The Defence Industrial Capability Plan was released on 23 April 2018,
discussed in Chapter 2. The Plan sets out information about support that
Defence will provide to SMEs.
6.26
Prior to the release of the Defence Industrial Capability Plan in April
2018, the committee received evidence that identified difficulties for SMEs who
were unclear as to how to engage in procurement processes.
Role of government in developing
capability
6.27
Both Commonwealth and state governments have an important role to
perform in developing domestic SME capability.
6.28
Ms Deidre Willmott, Chief Executive Officer, Chamber of Commerce and
Industry of Western Australia, suggested that:
...the role of government is to genuinely believe that
Australians can do this and to go and look for the Australians who can do it
and award contracts to those people...[T]he capability is here in terms of
shipbuilding, and I think the government should actually talk to the industry
and say, 'We have got this vessel we would like to build. What don't we have in
Australia that you would require in order to do that?' and then look at whether
there is any intervention required to do that.[28]
6.29
Mr Thompson, AMWU, explained that the government should ensure:
... Australian businesses of all sizes are able to enter the
supply chain. To achieve that they must lower the barrier to entry for firms
wishing to tender for the naval shipbuilding work, identify work that needs to
be done in Australia and engage local firms to do so, provide a long-term
pipeline of work so that businesses can invest in their businesses with
confidence, support SMEs to grow by enabling them to invest in new
equipment and skills in their workforce, set local content Australian industry
participation requirements and put in place and monitor those to ensure that
they are generally being met, and ensure that the work in the design phase is
undertaken in Australia. This will deliver high-skills high-wages jobs around
Australia, including here in Perth. Importantly, it will also deliver sovereign
capability that will enable Australia to build, maintain, sustain and upgrade
our ships and submarines through their whole life cycle...[29]
6.30
In regards to the future submarine program, Ms Margo Forster CSM, Chief
Executive Officer, Defence Teaming Centre explained that the government needed
to provide clear plans and schedules to enable SMEs to plan accordingly:
Without a transparent plan (and schedule) to transfer this
work [from DCNS] to Australian companies, industry will not be able to plan for
the long and complex journey to achieve the high safety, high quality standards
and highly skilled workforce required to work in the Future Submarine supply
chain. Our companies need to have confidence that the question is not 'will
we get the work?', but rather 'when we achieve the standards and get the
work'. This journey will take significant financial investment, it can't be
for nothing.[30]
6.31
The Hon. Greg Combet, Victorian Defence Industry Advocate, said that the
Victorian government was very keen to facilitate local industry inclusion in
national programs. However, the Commonwealth has a role to play in committing
to clear policy commitments and contractual obligations. Mr Combet stated:
We recognise the significance of those announcements for the
shipbuilding capabilities in South Australia and Western Australia. We have
concerns about the implications for the Williamstown naval dockyard in
Victoria, but we also are very keen
to help, as part of a national endeavour, facilitate access to the industrial
and research capabilities that are within Victoria to help deliver these
programs. But we do wish to emphasise, as we have put in our submission, that,
without clear, coherent national public policy that supports local content
being delivered through these programs, we will not generate the capabilities
that are necessary to be resident in Australia and that deliver on Australian
industry capability commitments that have been stated publicly. We cannot do
that without very clear public policy commitments and contractual obligations.[31]
6.32
Mr David Singleton, Chief Executive Officer, Austal Limited, suggested
that government support was not always necessary, as industry had demonstrated
its capacity to achieve results without government support. Mr Singleton
explained:
... I will give you an example of why I say the industry here
is strong. In this country, we are already by far the biggest builder and
designer of large aluminium ships in the world. We are the envy of the world in
aluminium shipyards. Between Austal, Incat in Tasmania and a number of design
houses in this country, most large aluminium ships are designed and built in
Australia with Australian labour. We should not forget that we have been able
to do that largely without government assistance...[32]
6.33
In the 2016 Defence White paper, the government outlined its commitment
to supporting Australian industry:
The Government is committed to maximising opportunities for
competitive Australian businesses; building export potential, depth of skills
and diversification for defence industry, and cutting red tape to make it
simpler and less costly for Australian industry to support Defence.[33]
6.34
The Defence White paper went on to outline a $1.6 billion commitment to
create the Centre for Defence Industry Capability (CDIC), the Defence
Innovation Hub and the Next Generation Technologies Fund to develop innovative
technologies and support SMEs.
Defence industrial capability plan
6.35
The Defence Industrial Capability Plan sets out information about
support that Defence will provide to SMEs.
6.36
Relevant initiatives include Sovereign Industrial Capability Grants of
up to $17 million a year for SMEs contributing to a Sovereign Industrial
Capability. The grants, of up to $1 million, will match dollar for dollar with
funds spent by the SME and are available for capital spending or non-recurring
engineering costs.[34]
Defence advises that SMEs contributing to a Sovereign Industrial Capability
Priority may have a range of obligations, including managing and building
Australian workforce skills and capabilities. SMEs would also be required to
consult with Defence prior to changing ownership structures.
Centre for Defence Industry
Capability
6.37
Initially foreshadowed in the 2016 Defence White Paper and the Defence
Industry Policy Statement, the Adelaide-based Centre for Defence Industry
Capability (CDIC) was officially opened on 5 December 2016. The CDIC provides
government support to SMEs through assistance to build SME supply chains and SME
knowledge. The online Defence Innovation Portal serves as a single entry point
for SMEs to connect with the CDIC. The government's naval shipbuilding plan
provides an overview of the CDIC's role.[35]
6.38
At the April public hearing in Adelaide, Mr John O'Callaghan, Executive
Director, Australian Industry Group Defence Council, was positive about the
role of the CDIC and the Defence Innovation Portal, so far:
Already we are seeing evidence of a large number of companies
applying through the innovation portal to participate in the programs which are
coming downstream, and I think that is really positive.[36]
6.39
Mr Thompson, AMWU, was also supportive of the establishment of the CDIC.[37]
Other witnesses, while welcoming the CDIC, told the committee that they had
reservations about certain aspects. The Western Australian Labor Government
Minister for Defence Issues expressed support for the CDIC, while stating his
concern that the CDIC was headquartered entirely in South Australia.[38]
6.40
Ms Willmott, Chamber of Commerce and Industry of Western Australia, was
critical about the information flow in and out of the CIDC, citing concerns
about transparency around when briefing sessions are held, who is invited, and
a sense that there is not 'uniform access to information'.[39]
6.41
Ms Forster, Defence Teaming Centre, noted that while the CDIC's mandate was
similar to the role of the Defence Teaming Centre, the two organisations have a
close relationship and complement each other:
[The] CDIC is a team of 30 or so people around the country
and, whilst they have the mandate to support industry to be prepared to enter
into contracts with Defence or with primes, they have not got the capacity to
reach out and support every single organisation that has the aspiration to be
involved. So we see our relationship with the CDIC as preparing our members to
get to a level of sophistication, that they can then access the support from
the CIDC.[40]
6.42
The CIDC has partnered with Austrade and the Defence Export Office on a
number of initiatives. For example, recently the CIDC partnered with Austrade
and the Defence Export Office to support 39 Australian companies, the majority
of whom were SMEs, to participate in Eurosatory 2018, 'a premier international
defence and security exhibition' in France.[41]
Global Supply Chain Program
6.43
The Department of Defence Global Supply Chain Program works with
multinational defence companies to identify opportunities for Australian
companies to become part of their international supply chains for both civilian
and military business.
6.44
At the time of publishing, the 2016 Defence Industry Policy Statement identified
six prime companies involved in the program: BAE Systems; Boeing; Lockheed Martin;
Northrop Grumman; Raytheon; and Thales. According to the Policy Statement:
[O]ver 1,000 commercial opportunities have been provided to
Australian industry under the Global Supply Chain Program and in excess of 115
Australian companies have won over 700 contracts together worth over $755
million.[42]
6.45
On 27 March 2017, the Hon Christopher Pyne MP, Minister for Defence
Industry, announced that Lockheed Martin has signed a new three year global
supply chain agreement which will grow the international competitiveness of
small to medium sized companies and their ability to enter export markets.[43]
On 2 June 2017, the Minister announced that Northrop Grumman and BAE Systems
had both signed new agreements under the program.[44]
6.46
The NSW government's submission to the inquiry was supportive of the Global
Supply Chain Program 'which drives inclusion of small-and-medium enterprises
into supply chains of defence prime contractors providing access to global
markets'.[45]
6.47
The Department of Defence Global Supply Chain Program currently operates
out of the CDIC as part of a broader suite of export programs.
The Defence Innovation Hub
6.48
On 5 December 2016, the Minister for Defence Industry, the Hon
Christopher Pyne MP, launched the Defence Innovation Hub (the Hub). The Hub is
a virtual network which will bring together Defence innovation programs. First
flagged in the 2016 Defence White Paper, the Hub is funded at $640 million
through to 2025–26.[46]
The Hub will 'enable industry and Defence to undertake collaborative innovation
activities throughout the Defence capability life cycle from initial concept,
through prototyping and testing to introduction into service'.[47]
Minister Pyne stated that:
The Defence Innovation Hub will provide an equal opportunity
for all participants from small to medium enterprises to prime defence
contractors to put forward their great ideas, make connections and collaborate
in the development of innovative technology.[48]
6.49
The government's naval shipbuilding plan provides an overview of the
role of the Defence Innovation Hub.[49]
6.50
On 14 July 2017, the government announced the second tranche of Defence
Innovation Hub investments worth $12.3 million.[50]
Defence Materials Technology Centre
6.51
The Defence Materials Technology Centre (DMTC) was established in 2008
and currently operates out of the Hub. The DMTC describes its purpose as
follows:
Collaborating through DMTC allows Australian industry to
leverage our existing relationships with Defence and research agencies, and
build their supply chains. DMTC's standardised approach to contract management
and our project oversight role removes an administrative burden for companies
and allows industry partners to direct all resources to realising project
outcomes ... DMTC supports Australian defence capability by advancing the
knowledge and technical capability of Australia's defence industry.[51]
6.52
On 26 April 2017, Naval Group announced that they had signed on as a
supporting industry participant with the DMTC. Naval Group noted that:
The agreement will see DMTC and DCNS collaborate on
developing technical expertise and building industrial capacity within
Australian maritime sector supply chains, with a focus in the first instance on
naval shipbuilding and repair.[52]
6.53
Minister Pyne noted that this agreement
'highlights DCNS's [Naval Group] commitment to
ensuring Australian industry participation in defence construction and
sustainment projects'.[53]
6.54
At the 20 June 2017 Canberra public hearing, Mr Clark provided an
overview of the purpose of the agreement:
We have a memorandum of understanding, an agreement, in place
to work cooperatively with the DMTC to try to promote and ensure that the
Australian level of industry and Australian involvement can be maximised. That
is the overarching intent of that agreement.
...
Basically the synopsis of the agreement is for DCNS and the
DMTC to work together to bring Australian industry into the view. What we have
agreed with the DMTC is that we feel that they are best placed to look for
particularly SMEs and smaller Australian industry involvement, so anyone that
is part of that process can actually get access to and be part of that process
with us.[54]
6.55
The agreement came in to effect on 31 January 2017.[55]
Next Generation Technologies Fund
6.56
On 16 March 2017, the Next Generation Technologies Fund (NGTF) was
formally launched.[56]
Initially announced in the 2016 Defence White Paper, $730 million over the
next decade will 'be provided for research on next generation technologies with
the potential to deliver game‐changing
capabilities critical to defence and national security'.[57]
The Department of Defence further explained that:
The NGTF is a forward looking program which will focus on research and development in emerging and future
technologies and develop early ideas into innovation
concepts that could further be explored and matured through the Defence
Innovation Hub. This will include technologies that are expected to deliver on
a time horizon that may be greater than ten years.[58]
6.57
While both the NGTF and the Hub are separate initiatives within the Defence
innovation system, the NGTF will be focused on funding research while the Hub
will be focused on development of ideas that are 'able to deliver Defence capability
and Australian Defence industry growth in the near term'.[59]
6.58
Air Commodore Forster, Defence Teaming Centre, was positive about the
impact of the NGTF, stating:
For me, the next gen tech fund provides defence industry
support to take these foreign-designed ships and develop innovative Australian
adaptations that will contribute to the sovereign capability, continuous
technology development and, potentially, spin-off for commercial opportunities
for our Australian supply chain.[60]
6.59
Mr O'Callaghan indicated that the fund is an important component in
engaging local industry in the naval shipbuilding programs underway:
The key element in this, I think, is this: over time, Defence
Science and Technology Group has been somewhat slow over the previous years to
pick up on innovative activities eventually getting to commercial outcomes. So
I think that the next generation fund is principally designed to get those
outcomes. In other words, the research is being done in partnership between
Defence Science and Technology Group and other research arms whether
universities or other independent research entities like, for example, the
DMTC—the Defence Materials Technology Centre and others. But the key then is to
encourage Australian companies to participate in exactly that innovative
activity so that they get commercial outcomes of relevance to all of those
programs we are talking about.[61]
6.60
Mr O'Callaghan agreed that the CDIC and NGTF have an important role to
play in sustaining a continuous naval shipbuilding program:
The bottom line is basically that for the technologies that
they are talking about, from the point of view of having capability which is
relevant to particular circumstances and particular points in time, you need to
have any industry constantly providing solutions to the technical challenges.
That is where the innovation component comes in. The fact that the government
is encouraging companies to actually apply for and participate in that way
gives a lot of hope about the longer term sustainment of each of the platforms.[62]
6.61
Mr Andy Keough, Chief Executive Defence SA indicated that South
Australian industry was already engaging with the NGTF:
You may not be aware, but the state government has initiated
a Defence Innovation Partnership. It is a collaboration between the South
Australian state government, DSTG—the Defence Science and Technology
Group—three local universities and also industry. That is a way of us engaging
with that Next Generation Technologies Fund. That is a good long-term strategy
and we hopefully will see increasing amounts of R&D being translated into products.[63]
6.62
However, an examination of the $16.8 million NGTF allocation for the
2016-17 financial year found that there were no initiatives related to the
naval shipbuilding industry funded.[64]
The Minister for Defence Industry indicated that the funds would be invested by
June 2017, with the first program Grand Challenges to be funded. Grand
Challenges is a program where Defence puts forward a problem with 'no easy
solutions' and asks Australians to come up with an answer. Minister Pyne
informed:
The program will bring small agile companies, including
start-ups, larger companies and academic researchers to work alongside Defence
scientists in pursuing large-scale, mission-focussed projects with
clearly-defined end goals.[65]
Australian Trade and Investment
Commission
6.63
Australian Trade and Investment Commission (Austrade) also assists
Australian exporters and education providers with undertaking business in
overseas markets and understanding foreign regulations and business practices.[66]
In parallel, Austrade also helps companies around the world identify and take
up investment opportunities in Australia, and source Australian goods and
services. Austrade provides insight into Australia's capabilities, identifying
potential investment projects and strategic alliance partners, and helps
companies to identify and contact Australian suppliers.[67]
6.64
Austrade produces Industry Capability Reports across 19 Australian
industry capabilities which provide overviews of each industry with case
studies to highlight industry achievements. In December 2016, Austrade
published an Industry Capability Report on Australia's Commercial Shipbuilding
and Services. The report provides an overview of Australia's maritime industry,
supply capability, maintenance repair and overhaul sustainment, companies and
government and industry associations. The report includes a comprehensive, but
not exhaustive list of organisations in Australia and their capabilities.[68]
6.65
The report notes that:
International partners are easily able to collaborate with
Australian companies and research institutions, invest in or incorporate
Australian solutions into existing products, or enter into joint ventures to
take products to the global market. Australia has the capabilities to
participate in global value chains at every stage of the innovation cycle,
including research, design, development, testing and production.[69]
6.66
Both the CDIC and Austrade are sources of government support which SMEs
can take advantage of when aspiring to enter the international market and
become part of international prime company supply chains.
Non-government support
6.67
There are also a number of non-government sources of support for SMEs,
most notably industry associations. Industry groups include: Australian
Commercial Marine Group, Australian Industry Defence Network, Australian
Industry Defence Council, Australian Shipbuilding and Repair Group, the
Henderson Alliance and the Defence Teaming Centre. For example, the Committee
was informed that:
The Defence Teaming Centre is based in South Australia;
however, it represents some 250 member companies across the country, including
prime defence contractors, SMEs and professional service providers, who are
involved in supplying defence capability and/or defence support services.[70]
Committee comment
6.68
The Naval Shipbuilding Plan outlines the government's commitment to the
inclusion of Australian industry in supply chains. One way that this is
achieved is by a requirement that tenderers complete an Australian industry
participation plan as part of their bid for major defence contracts.
6.69
The committee acknowledges the value of creating an Australian Industry
Capability Plan during the tender process for government programs; however
without mandated Australian industry requirements for involvement and content,
or enforcement to ensure that the successful tenderers' industry plan is
adhered to, the committee is not assured that the government has taken all
steps available to fully support Australian SMEs.
6.70
The committee is supportive of the industry briefing days that took
place in 2017 and the effort demonstrated by both the Department of Defence and
prime companies to engage with local industry about upcoming programs. While it
is still too early to evaluate the effectiveness of the support provided to
SMEs by the CDIC and the NGTF, the government must continue to support SMEs
while these evaluations take place.
6.71
In absence of other support, industry briefing days are not enough. The
committee notes that SMEs require meaningful, practical assistance as they
begin to develop technologies and work to improve their products so that they
meet the standards required by the primes. This includes support for crucial
research and development.
6.72
In addition to government support for Australian SMEs to gain entrance
into local projects, the government should focus on supporting Australian SMEs
to break into the exports market. This is crucial to the long term stability of
the naval shipbuilding industry. Indeed, the government already provides
multiple programs which can assist SMEs to become part of international supply
chains.
6.73
The committee encourages SMEs to take advantage of the support provided
by the government, prime companies and industry associations, so that they are
competitively prepared to bid for future domestic and international contracts.
6.74
However, while the government appears to have been providing multiple
avenues of support to SMEs, particularly in the past 12 months, unless
recommendations seven and eight from Chapter 5 of this report are implemented,
SMEs will continue to face uncertainty about their long term involvement in
government programs.
Senator Chris
Ketter Senator the Hon
Kim Carr
Chair
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