Senator the Hon David Fawcett's additional comments

1.1The broad range of comments provided by the Department of Defence (Defence) and industry stakeholders are remarkably similar to those provided to the JointStanding Committee on Foreign Affairs, Defence and Trade (JSCFADT) during the inquiry that led to the 2015 report “Principles and Practice – Australian defence Industry and Exports”.[1]

1.2To quote from the foreword to that report:

The conduct of this inquiry highlighted, yet again, the yawning gap between many elements of Defence industry policy and its implementation as experienced by Australia’s defence industry sector. The Committee’s comments in Chapter two and the associated appendices outline an approach that will lead to a far more strategic partnership between Defence and industry.

The Committee’s starting point was accepting the evidence provided during this inquiry—and validated by recommendations of the First Principles Review—that elements of defence industry are essential to Australian Defence Force capability. Defence therefore has an interest, indeed an obligation to identify elements in industry that are fundamental inputs to capability (FIC) and then to use available means—including domestic procurement programs and support for exports—to enhance and sustain them.

This will need a new approach to identifying and managing risk, and an acceptance that for complex systems, value for money may be found more often in long term partnerships than through ongoing, open competition. Where elements of industry are identified as being FIC, programs that encourage research and development that leads to intellectual property and a path to commercialisation should be funded as a priority.[2]

1.3Given the multiple policies, initiatives and funds committed to addressing these issues under both parties of Government, the public are well justified in asking why the outcomes remain so varied.

1.4The recent Australian National Audit Office (ANAO) report into the HunterClass project highlights that a key reason for failure is the mis-alignment between Government policy intent and the whole-of-government enabling processes such as the Commonwealth Procurement Rules (CPR).[3] The ANAO assertion that ‘Defence has conflated an industry policy objective (establishing a continuous naval shipbuilding program in Australia) with the achievement of value for money’ when Defence was in fact seeking to establish a sovereign naval ship building capability—in line with Government policy direction—highlights the fact that the CPR do not recognise “sovereign capability” as value for money. Sovereign industrial capability is programmatic in nature and interacts with multiple individual projects. The CPRs are designed to drive value for money for a project but in practice act to constrain Defence officials in how they engage with Australian industry to build sovereign capability over multiple projects.

1.5The Committee’s forward work in this inquiry must not only look at better ways to define sovereign defence industry capability, but ensure that whole-of-government enabling-processes are modified such that they inform and enable the creation of approved sovereign capabilities in the most effective and efficient manner. Recommendations 14–16 of the JSCFADT report into supply chain lessons learned during the COVID-19 pandemic cited in this interim report provide a good starting point for this analysis but also highlight that central agencies such as the Department of Finance must also play their part in adapting to the deteriorating strategic circumstances in which the nation now finds itself.

Senator the Hon David Fawcett

Member

Liberal Senator for South Australia

Footnotes

[1]Joint Standing Committee on Foreign Affairs, Defence and Trade (JSCFADT), Principles and Practice – Australian defence Industry and Exports, inquiry of the Defence Sub-Committee, November 2015.

[2]JSCFADT, Principles and Practice – Australian defence Industry and Exports, inquiry of the Defence Sub-Committee, November 2015, p. viii.

[3]Australian National Audit Office (ANAO), Auditor-General Report No. 21 of 2022–23, Department of Defence’s Procurement of Hunter Class Frigates, 10 May 2023.