Around 250 delegates from Defence and industry attended the 2015 annual ADM Congress on February 10. Held in Canberra’s Hyatt Hotel, the Congress was the 12th in the series of Defence/Industry Conferences and chaired by AI Group’s John O’Callaghan. The new-look one-day event culminated in the ADM/DMO Awards for Excellence, including the presentation of the coveted Essington Lewis Trophies.
Unfortunately Kevin Andrews could not personally attend but instead provided a short video to open proceedings. The Minister reaffirmed government’s commitment to increase Defence spending to two percent of GDP by 2023/24 and confirmed the Force Structure Review and Defence White Paper are on track for release mid-year.
He told delegates the Abbott Government was working to understand the options of a sustainable Australian naval shipbuilding industry.
“The Government remains committed to Australian industry involvement in the Future Submarine program,” he promised.
Andrews also noted the work with Defence and industry to determine whether the combat reconnaissance vehicles to be acquired under Land 400 Phase 2 can be built in Australia.
“Defence will work with the Department of Industry to see where Australian manufacturing opportunities can be maximised throughout this project,” he said. “And I expect to have more to say about Land 400 in the near future.”
The Minster concluded by promising that 2015 will be a “Year of decisions.”
VCDF Ray Griggs
Vice Chief of the Defence Force Vice Admiral Ray Griggs said Defence needed to better grapple with the need for competitive tension in its acquisition process against the need to ensure the greatest level of commonality that is practical.
“In a force the size of ours we simply cannot afford for commonality (internally from a fleet management perspective and externally from an interoperability perspective) not to be a central acquisition principle,” VADM Griggs told the audience.
“I am totally convinced we need to be more directive in our needs and requirements articulation in his respect…… if we can’t fix it overnight, we can at least set the principle and then stick to it.”
From his perspective as the Joint Capability Authority, one of the most vital aspects of the forthcoming Force Structure Review, the Defence White Paper and the accompanying Defence Capability Plan (DCP) was ensuring that key joint “glue projects” were appropriately placed and sequenced.
It was a fact of life that the DCP was dominated in dollar terms by a small number of large projects.
“We can manage that, but what we must guard against is using the smaller projects, particularly the glue projects, to manage budget pressures. I see this as one of my key roles to champion those capabilities that really go to the heart of our ability to operate as a single force and to ensure that their prioritisation is right.”
DMO Acting CEO Harry Dunstall
Changes in the DMO’s contractual strategy were noted by acting CEO Harry Dunstall, centred on the growth of performance-based contracts (PBC), primarily in the aerospace sector but now being extended to the land and maritime domains.
“This is the current norm for our sustainment activities which means we can put a lot more work out to industry to do in the same space if industry accepts that risk and works under a performance management framework,” he said.
At the moment between $1-1.5 billion was contracted under performance-based agreements, with about 60 per cent – soon to grow to 75 per cent – of these allowing for contract extension on the basis of good performance. This reduced red tape and cost.
The key consideration for an Integrated Support Contract (ISC) – one where a contractor performs functions traditionally carried out by Defence – was to focus on the transactional-level functions.
“We don’t want to hollow out our organisation though this process; we do need to keep and intuitively retain our informed customer status….. but as an intuitive model I’m sure this will grow, and there is great capacity to outsource more functions.”
The payment model depended on how well the package of work could be defined.
“If we can define the package of work we’ll try and fix prices. If we can’t then we’ll use things like cost plus and incentive fees,” Dunstall said.
Mark Thomson, ASPI
Dr Mark Thomson, senior analyst for defence economics at ASPI, detailed the harsh realities of financial developments since Tony Abbott’s September 2013 promise to boost defence spending to two per cent of GDP within a decade.
Projected government revenues over the next four years of the forward estimates have fallen by nearly $39 billion, Senate negotiations have resulted in $7.2 billion of additional spending $3.4 billion of foregone savings, and a further $34 billion of savings in limbo.
Fiscal problems represented political rather than economic constraints on the government’s freedom of action, Dr Thomson said.
Nevertheless, a restive electorate and low public interest in defence issues, in the absence of an international crisis, meant the task of raising defence expenditure to the targeted two per cent of GDP was getting harder by the day.
Jens Goennemann, Managing Director AGAP
Dr Jens Goennemann, managing director of Airbus Group Australia Pacific noted the importance of working in partnerships to deliver capability. He considered there had to be a relationship based on trust between large defence companies and Defence as their sole customer – but also the same relationship between the prime and the SME suppliers.
“We are many industry suppliers but we have only one buyer,” he said. “When contracts alone are not the sole answer that is where partnerships become very important.”
But he warned that defence industry would not survive while there were question marks about its future, adding that it had to move away from the mindset of combative approaches to contracts and relationships.
“It all begins with contracts and it is my personal view that a good contract is a contract which sits on the shelf (and is) rarely touched because a good relationship is not driven by the contract, but by transparency, trust and teamwork.”
Goennemann said that there were no shortcuts to a life-long relationship, and trust must be continually earned.
“A great partnership is a powerful thing, it delivers capability based on trust and achievement,” he concluded.
Gerard Foley, GM Strategy, Raytheon Australia
Raytheon Australia’s general manager strategy, Gerard Foley, continued the theme of partnership, noting the relationship between Defence and industry was symbiotic, but noted that industry should be acknowledged as a Fundamental Input to Capability (FIC).
“Not surprising for politicians, the community and the media the overwhelming public feature of Australian defence industry is its project-driven nature. Work starts and stops with the cycle of project work and industry has limited ability to hold capacity while it waits for work,” he noted.
“It’s clear that our industry is very much at the mercy of the changes in customer demand. This serves to explain the incredible volatility in our workforce, where there is no continuity of projects.”
He noted that one of industry’s toughest challenges was that of overcoming uncertainty, often after contracts have been signed. Another was whether major international companies decide to participate in a tender bid, which may cost $10 to 20 million over the course of a decade, for a return of less than 10 per cent.
“We should continue to emphasise that our industry is a major importance to government because of the role it plays in delivering capability through its products and services,” Foley continued. “Although industry isn’t one of the eight FICs as defined by Defence, it is obvious that without our sector the ADF will be incapable of achieving particular operational effects, such as collective training, major systems, supplies, facilities and support.”
Head of Navy Capability, RADM Jonathan Mead
The newly-appointed Head of Navy Capability, Rear Admiral Jonathan Mead, disclosed that 40 per of the RAN fleet was at sea every day. Its operational commitment, including border protection, counter-terrorism and anti-piracy, took up 20 per cent of the fleet on any one day, with the other 20 per cent involved in raise/train/sustain operations, international exercises and regional engagement.
The Chief of Navy wanted his platforms to be reliable, available and maintainable. The focus therefore for the fleet moving towards the 2030s was capability, commonality and cost of ownership, with acquisition currently accounting for just 25 per cent of through-life costs.
Chief of Air Force Air Marshall Geoff Brown
Air Marshal Geoff Brown used his address to the Congress to stress the importance of harnessing technological innovation to develop forces that will be aligned to the evolving threat environment.
He also warned that organisations must adapt their culture and intellectual mindset.
Quoting US Army Air Force General George Kenney he said, “Second best Air Forces are like second best poker hands. They cost you a lot of dough but get you nothing.”
In the context of the JSF, AM Brown said that it replaces nothing but, if employed to its capacity, changes everything.
“It possesses a unique capacity to find, fix and strike but, if it is to achieve its potential, every element of our force must be able to find, fix and strike to the same degree – or at the very least, receive, interpret and employ the information that the JSF acquires and disseminates,” he said.
“In the Information Age, if you cannot break down stovepipes between multiple inputs you can drown in your own information.”
AM Brown also warned that shrinking research and development budgets in defence industry was a worrying trend.
“As an airman I need you to help me find a way to stay abreast of the emerging technologies vital to my force, while maintaining your own profitability,” he told industry delegates.
Rohan Stocker CEO Marand
Providing perspective of a successful SME, Marand’s CEO Rohan Stocker provided an overview of his company’s activities - including the contract to manufacture 722 vertical tails for the F-35 program and gave valuable advice to businesses seeking opportunities in the space.
“For SMEs, just as important as creating a competitive advantage is the ability to articulate it with your customers. Another competitive advantage we have is that we’re able to convince our customers and help them understand what value we can bring to the table,” he noted.
With regard to working with the primes, Stocker said it above all else it was important that the SME is awarded real work.
“You cannot overestimate how important that is for a business,” he said. “We can have all the improvement and development and training activities from the primes, but in the end nothing focuses a company on improvement than real contracts, measured in real dollars, real delivery dates, real quality etc.”
Stocker also said it was important for the primes to allow SMEs to deliver their competitive advantage their own way and he emphasised the important role the Commonwealth plays in being the ‘customer’s customer’.
“Having someone in uniform from a defence customer’s senior level does make a real difference,” he said.
General Manager Submarines David Gould
The requirements for Australia’s Future Submarine have been established, but there’s no existing platform that meets them, according to the head of the Sea 1000 program.
David Gould, General Manager Submarines at the Defence Materiel Organisation, told the 2015 ADM Congress in Canberra that the final level of design and performance for the Collins class replacement could not be undertaken before stabilising the overall requirement “and we have done that.
“We do know what we want, we know the roles – which will be the same as Collins; the range and endurance, to be much the same as Collins; we want reliability and maintainability to be much better than Collins; and we want the combat system and survivability to be better than Collins.”
Gould said the Sea 1000 team in Adelaide had worked closely with the US and UK in completing a sophisticated proof of concept.
“We know in technical terms the requirement is achievable, we have a design brief and a set of documents which detail the philosophy for each sub-system and the overall design.”
The skills that had now been developed would enable Australia to be a knowledgeable participant with the strategic partner that was necessary to carry through the Future Submarine program, Gould stated.
No-one had a product that met Australia’s requirements, “therefore someone somewhere is going to have to do the significant design work just for Australia”.
Gould was speaking in the midst of confusion about whether Adelaide-based (and government-owned) ASC will be permitted to tender for Future Submarine construction along with Japanese and European shipbuilders.
Discussions had taken place with Japan on exploiting the design of the Oyashiro and Soryu classes of submarines, and initial talks had been held with Germany and France – presumably with TKMS and DCNS, Gould confirmed.
“None of these suggest a boat to the point of choice,” he stated.