Australian Industry Capability Program Calls To Be Reviewed

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November 20th, 2019

Australia’s peak national industry body for representation of mostly small to medium businesses operating in the country’s defence and national security industry has demanded an urgent review of the Australian Industry Capability (AIC) program, citing concern it wasn’t meeting its objectives of providing opportunities for local SMEs to compete for defence work within our shores and overseas.

The Australian Industry & Defence Network (AIDN) also noted that its other objective of encouraging investment and intellectual property development in Australian industry may also not be getting met.

“The current AIC policy framework, established by the government through the Department of Defence, is well intentioned and has been warmly received by Australian industry. However, the AIC program as implemented is not facilitating development of sovereign industry capability or business opportunities for the local Australian defence supply chain to the extent envisioned,” said Lester Sutton, chairman of AIDN National.

“Australian industry, particularly small and medium business, is now at risk of losing out on sovereign industry capability, billions of dollars of work, and thousands of local jobs.”

AIDN claims that its members across the country are "reporting significant frustration in getting Australian industry involved to the extent envisioned across major new defence programs including the Future Submarine, Future Frigate, Offshore Patrol Vessel, Combat Reconnaissance Vehicle and Joint Strike Fighter programs", warning that if the AIC continues down the road it is going, the outcome will be to lock-in more overseas suppliers and exclude Australian industry from participating in these acquisitions, including through-life support.

“Australian industry is not after a hand out, but it wants the opportunity to compete on a level playing field, for the first-of-class of Australian military platforms, otherwise there is a high likelihood Australian industry will be excluded for the life of the platforms – and sovereign industry capability will not be achieved," Sutton said.

“With these major programs across all of defence, including SEA 1000 Future Submarine, SEA 5000 Future Frigate, SEA 1180 Offshore Patrol Vessels, LAND 400 Phase 2 Combat Reconnaissance Vehicle, LAND 400 Phase 3 Mounted Close Combat Vehicle, LAND 4503 Armed Reconnaissance Helicopter and LAND 2097 Phase 4 Special Operations Helicopter, now is the time, without detracting from delivering the defence capability our defence forces need, to focus defence acquisition on supporting sovereign industry capability, local jobs and the significant economic benefit this brings to the country.”

With these acquisitions marking the largest defence purchases in Australia's history, many SMEs feel left out in the cold with subcontracts for these major programs.

For example, French companies have won two of the three subcontracts for major subsystems for the Attack Class submarine established by fellow French company Naval Group, with the other being won by German company MTU.

While it's not as simple as saying that it's favouritism, when its likely that these companies were genuinely the best option, decisions such as these have seen local SMEs raise their eyebrows.

The proposed solution

AIDN has announced its recommendations to "improve the AIC program’s effectiveness and to ensure Australian industry, particularly small and medium businesses, are not further excluded from such opportunities".

They are as follows:

  • Creation of an AIC program assurance regime to transparently monitor and review AIC quantum and quality contained within actual purchase orders placed, against contractual commitments and any pre-contract assurances made by prime contractors, and be subject to external audit;
  • Enhancement of the mechanisms for enforcement of AIC program commitments, including material penalties, such as liquidated damages and make-good obligations;
  • Introduction of incentives for overseas suppliers to team with Australian companies rather than establishing new subsidiaries in Australia, if the genesis of a required capability already exists within Australia industry; and
  • Immediate application of expert defence resources to the two largest acquisitions (Future Submarine and Future Frigates) to integrate extant Australian industry into the detailed designs, supply chains and production details for these vessels prior to first-of-class vessel construction.

“These are relatively straightforward changes, which we believe can and need to be implemented without delay,” Sutton concluded.

“AIDN members are grateful for the significant reform achieved in defence industry policy by the government over the last five years and fully support the drive to generate more local capability and corresponding jobs through the transfer of overseas technology. But we need to ensure the intent and extent of these good policy settings, particularly around AIC, are actually achieved.”